The gains of the 1991 reforms have reached their limit and India now needs a new playbook for the next level of growth
The expectation from Budget 2020 is that it will provide a stimulus to the staggering economy by spending on infrastructure (that leads to job creation and higher wages) and by putting more money in the hands of the people to rekindle consumption by reducing what 35 million Indians pay as income tax. The spending on infra route has a delayed cycle of impact because it takes time for the projects to come up and the ripple effect of jobs and consumption to take place. Putting more money in the hands of the people has a direct impact if people indeed spend the taxes they save. The problem in India is that consumption may have stalled due to the informal economy holding on to their cash and not spending it. While getting the informal part to formalize is a waiting game, it does look as if the government has little option but to let go of the Financial Responsibility and Budget Management (FRBM) target for financial year 2020-21 that restricts the fiscal deficit to 3% of the GDP.