The first advance estimates of India’s gross domestic product (GDP) for 2019-20 are out, and the numbers peg this financial year’s growth rate at 5%. This is in line with the central bank’s latest projection, and it bears out a spate of high-frequency indicators that have been pointing to a cooling of the economy. The sagging trends during the first half of the fiscal year put worry lines on foreheads all around. For the second half, due to end in about 12 weeks, the Central Statistics Office (CSO) expects farm output to be flat, industry to reverse its first-half decline and services to revive. The ongoing slide in energy and mining output and construction activity, however, is expected to continue. The CSO reckons that consumption and investment will also emerge from its trough. If this happens, it would offer some elbow room to a government caught in a bind of weak revenue and enlarged expenditure commitments. The broad message in the latest official data, though, is that the second half of 2019-20 will be decidedly better than the first six months. This reading that the worst may now be behind us is likely to influence the assumptions that go into the budget due on 1 February.
By the CSO’s data, the government’s books do not appear too far out of kilter, considering that it has already overshot its market borrowing targets for the fiscal year, and various projections that went into the previous budget have been off the mark by a wide margin. This year’s disinvestment target looks out of reach, for example, though it could yet possibly be met. As a result of the economic slump, tax collections have been slower than in almost all comparable periods of the previous fiscal year, but the government still has the last quarter of 2019-20 to mobilize revenue and undertake sharp cuts in spending. States are being talked to about fixing the goods and services tax, and slashes in corporate tax have been partially offset by a transfer of excess reserves from the Reserve Bank of India (RBI). In addition, the Centre could dip into small savings without spooking bondholders. It could also roll over a part of its welfare payments. A guillotine on unspent monies with ministries could deliver substantial savings, thereby keeping the fiscal deficit from yawning too wide. All taken into account, there appears to be some room for enhanced cash transfers to the poor and even signal reductions in income tax rates.
An oil upsurge could yet throw the government’s fuel bill calculations into a spot of disarray, but then, the impact of a Gulf supply squeeze tends not to last very long anymore, given the compensatory role that US shale oil supplies now play. Still, the government, as well as RBI, will need to keep a close watch on the odds of a disruptive conflagration in West Asia. In general, too, India’s fiscal and monetary policy have to act in concert, as they have over the past year. Monetary easing has gone along with a slew of fiscal measures taken by the Centre to stimulate economic activity. As of now, the central bank is awaiting Nirmala Sitharaman’s second budget before it takes a call on easing credit further. If the finance minister presents an acceptable set of numbers, perhaps a slight fiscal slippage could be overlooked. Achieving a GDP growth figure that’s significantly more than this year’s 5% will be the priority next year.