Budget 2020 unlikely to meet growth targets in FY21: Crisil

03 Feb 2020 Evaluate

Rating agency Crisil in its report has expressed concerns over the budget attaining its targets on growth, given the rural boost and thus consumption and revenue realisations, and said that planned budgetary measures are not expected to provide a short-term boost. Noting that the economy is facing its worst slowdown in over a decade, a Crisil report has said this was because consumption and investment have stopped firing for too long. It said if at all the GDP were to clip at the projected 5.7-6.6% in FY21, it will be thanks more to the base effect-FY20 growth at an 11-year low of 5%, down from 6.1% in FY19 on the back of a 48 year low nominal growth of at 7.5% in FY20. It added that the given its tied hands, the government has aimed at some measured moves in the budget to bolster growth. Most of these, however, are not expected to provide a short-term boost.

It warned that in the absence of growth kickers, growth pick-up in fiscal 2021 is expected to be largely led by the base effect and supported by somewhat better farm income (led by a good rabi crop) and the delayed impact of monetary easing. Critical to this forecast is the assumption of a normal monsoon in the next season and benign global crude oil prices. If that sounds bad, the financial sector stress has been looping into real sector weakness, dragging down growth some more. The external front has also landed the domestic economy a few blows. What makes this ‘shrinking’ feeling stranger and last longer is the long-overdue financial sector clean-up, at a time when the economy is suffering from many other ailments.

The report noted that the additional fiscal space of 50 bps more over FY20 budget estimate projection for FY21 (fiscal deficit projected at 3.5% of GDP next fiscal against the glide path of 3%) is to be funded by aggressive disinvestment, asset monetisation and telecom revenues, optimistic tax-buoyancy assumptions and some tightening in overall expenditure. But, the space so created is being used to fund capex and rural sector spending that support consumption. It also said despite tight fiscal conditions, the budget makes room for higher capex. Overall capex is budgeted to increase 18% in fiscal 2021. A large part of this is infra spending. But, ironically, the overall infrastructure spending is budgeted to decline 7% in FY21 because of lower reliance on extra budgetary spending through central public sector units despite higher budgetary support. Similar is the projected slowdown revenue expenditure in fiscal 2021, led by lower burden of food, fuel and fertiliser subsidies.

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