Days ahead of the presentation of the Union Budget 2020-21 in Parliament by Finance Minister Nirmala Sitharaman, credit ratings agency Brickwork has said the government is expected to continue amendments to various laws to provide ease of doing business and announce appropriate measures to set a clear roadmap for achieving its ambitious $5-trillion target by 2025. Nirmala Sitharaman is widely expected to announce stimulus measures for small businesses and non-banking finance companies as a cut in corporate tax rates and rate cuts by the central bank have failed to revive growth.
Calling the upcoming Budget as "an opportunity to unleash reforms", Brickwork Ratings said that the measures brought in since August 2019 are expected to have an impact on the economy gradually.
After higher taxes on foreign investors announced as part of the first Budget of the second stint of Prime Minister Narendra Modi's administration in July hurt investor sentiment, the government announced a series of measures to prop up the economy.
- Upfront capital infusion of Rs 70,000 crore into state-run banks
- Merger of 10 state-run banks into four
- Reduction in corporate tax rate to 22% from 35%, and 15% for new manufacturers
- Rs 102 lakh-crore infrastructure project pipeline for next five years
The Finance Minister has to be very careful while making budget allocations to existing schemes as the task has become more challenging, according to the ratings agency.
India's gross domestic product (GDP) expanded at 4.5 per cent in the July-September period, worse than economists' estimates and the slowest pace of economic expansion recorded since March 2013 as consumer demand as well as private investments weakened.
The economy is struggling against a growth slowdown due to low demand and thousands of job losses across sectors. The government has forecast a gross domestic product expansion rate of 5 per cent for the year ending March 2020, the slowest pace recorded since 2008-09.
Analysts expect the government to announce tax concessions in the Budget 2020 that will leave many individuals with more money in their pockets.
Most of industry-specific demands have been addressed by the Finance Minister in her announcements since August 2019, including recapitalisation of banks and measures to address the liquidity crisis in shadow banks, according to Brickwork.
The Bengaluru-based ratings agency also said expects the existing PSU bank mergers to stabilise before the government considers any further amalgamation in the sector. "Most PSBs are well capitalised and have capital adequacy ratios well above the regulatory requirement," it said. Brickwork said it does not expect any additional funding requirement from the government for PSU banks in 2020-21.
These measures are expected to have an impact gradually. The amendments made in IBC law enabling the resolution of finance companies and the Supreme Court verdict on the resolution of Essar Steel case has been positive in terms of releasing the locked-up funds in stressed assets.
The government is expected to continue amendments to various laws to provide ease of doing business. Much of the focus is on what the Budget 2020-21 offers to bring the economy on a growth track quickly to attain the $5 trillion economy goal by 2025, it said.
Many economists have lowered their growth estimates for the economy, which needs to grow at around 8 per cent to create enough jobs for the millions of young people joining the labour force each year. The International Monetary Fund (IMF) this month cut its growth forecast on India to 4.8 per cent for the ongoing fiscal year - its lowest level in 11 years.
Some even expect the current slowdown - which started in late 2018 - continuing for another year or two.