Will the Government’s Budget For 2020 Help the Indian Economy?

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The second budget of Modi Government in seven months deceived investors hoping for major stimulus’ in Asia’s third-largest economy to rekindle growth. The fiscal plan–implemented on Saturday by Minister of Finance Nirmala Sitharaman–proposed cuts to individuals and broader targets for deficits, but did not take specific steps to fix difficult financial sectors, improve infrastructure and create jobs.

As a proposal to abolish the dividend distribution tax on companies, stocks slowed down. The second budget of the Modi Government in seven months disappointed investors in Asia’s third-largest economy who had hope for big opportunities to rekindle growth.

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India grew to its weakest performance in more than a decade this fiscal year, estimated in 5 per cent, since it’s world fastest-developing major economy was three years ago, growing at 8 per cent. While in recent months, the Government has taken a number of steps to boost growth, the consumption-driven economy has been under-stimulated by demand. The budget of Saturday added to the feeling of glum.

The Budget Proposal

The budget proposals would provide some help to demand over the longer term, but were not enough to raise it overnight, analysts and industry leaders said. In the year that ends in March, Indian economy is expected to grow 5%, its slowest pace in 11 years, to add to pressure on the Prime Minister Narendra Modi, who is already in conflict with new legislation on the citizenry.”

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“We see the budget as largely neutral for growth and inflation,” said Nomura economist Sonal Varma, adding that the financial sector’s problems could further delay any recovery. In the last three month of 2019, annual GDP growth is likely to drop to 4.3%, with an annual growth rate dropping to 4.5% in more than six years. Economists say India is likely to lose its goal of fiscal budget deficits of 3.5% of GDP in 2020-2 because its government’s target of almost 10% growth is focused on almost growing.

Nomura said annual growth in the gross domestic product (GDP). Investors and consumers were also disappointed with the budget because the beleaguered financial market and housing market did not receive any new incentives while it was not clear if any of the proposed changes would lead to net gains in individual taxes.

Shares In A Downward Spiral

In a special trading session on Saturday after the announcement of the budget, Indian shares slipped up to their lowest level in more than three months with analysts saying that inadequate similar steps had been taken.

In Finance Minister Nirmala Sitharaman spoke to reporters on Sunday about the measures taken by the investors to boost growth, since she had tried to balance the fiscal discipline with extra spending while making concessions for taxpayers.

The NSE 50.0 Index closed down 2.5 per cent, while the bottom line for S&P BSENSE dipped -0.57 per cent. The government plans to increase development to 6% to 6.5% in 2020-21 and will enable India to reach its goal of $5 trillion by 2025.