Business Today


FINANCE MINISTER NIRMALA SITHARAMAN will present Budget 2021 in the backdrop of an exceptionally chaotic 2020. In Q1 of FY21, India’s lockdown-struck gross domestic product (GDP) contracted an unprecedented 23.9 per cent, the worst among major economies. When the economy opened up, pent-up demand pushed up consumption, but GDP still shrank 7.5 per cent in Q2. And even though the RBI predicts that the economic shrinkage is over and GDP will grow 0.1 per cent and 0.7 per cent in third and fourth quarters, respectively, FY21 is destined to go down in history as India’s fifth recession.

It is in this backdrop of extreme stress that Sitharaman sought growth inducing ideas with the promise to deliver “a Budget like never before”. Under the circumstances, that’s a herculean task. After all, the elbow room to spend is constrained by falling tax revenue and rising fiscal deficit, which touched 135.1 per cent of Budget estimate in November. So, what is it that she can do to unleash the potential of India’s economy? To suggest a growth recipe, Business Today hosted a Pre-Budget Roundtable comprising D.K. Joshi, Chief Economist, CRISIL; Gopal Krishna Agarwal, National Spokesperson of the BJP on Economic Affairs; Prof. Gourav Vallabh, Spokesperson, Indian National Congress; Mukesh Butani, Managing Partner, BMR Legal Advocates; Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company; and Akhil Gupta, Vice-Chairman, Bharti Enterprises. The discussion was moderated by Rajeev Dubey, Editor, Business Today. Edited excerpts:

Business Today (BT): Where is the Indian economy now? Do you see any improvement in economic situation? Where do we go from here?

D.K. Joshi: The economy has performed better than expected. Second quarter GDP is proof of that. We have seen many upgrades of growth forecast, including by RBI. Our own forecast now is -7.7 per cent contraction as against -9 per cent earlier with the fourth quarter registering a mild positive growth. Second, people are learning to live with the virus. That has helped the economy with positive pent-up demand. The most positive news is that the Covid curve has been under control for some time now.

But recovery is not uniform across sectors. Smaller firms have been hit much more than the larger ones. So, next round of banking NPAs could arise from smaller firms. The pick-up is led by manufacturing, although services are also trying to claw back. But as long as there is fear of the virus, demand services will continue to suffer from residual anxieties.

The rural economy is doing better than urban. Clearly, agriculture has not been impacted. Government support has had a rural bias. There is no scheme like MGNREGA, which has been expanded by ₹50,000 crore, for the urban poor. Finally, we are unhappy with higher inflation, but high food inflation particularly WPI food inflation which is a close proxy for what farmers get is benefiting them.

4.18% GDP growth in FY20, lowest since 2002. The economy has been facing stress even before Covid

Nilesh Shah: Today’s period is like 1991. We have gone through an unprecedented crisis and seen the worst-ever quarterly GDP contraction. But it is an unprecedented opportunity.

If you go by RBI’s estimates, more than two crore Indians spend $10-15 billion annually on foreign travel. Because of Covid restrictions, few will travel abroad this year. If they spend on domestic tourism and other things, our economy will benefit. Similarly, every year, over 2,00,000 students spend $7 billion to study abroad. That number will fall significantly this year. Can we retain those students in our universities?

In the last 21 years, Indians have spent $373 billion in net gold imports. We have spent more money abroad than we have received as foreign direct investment and foreign portfolio investment. Covid-19 has pulled down gold imports and smuggling.

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