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Economic Survey: GDP Growth Projections Subdued, Time To Unleash Animal Spirits

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The Economic Survey tabled today clearly suggests that we need to unleash the animal spirits. A GDP growth of just 7 per cent for 2019-20, is not good enough, given that we have achieved 7.5 per cent on an average in the past 5 years.

India needs to grow at 8% per year to be a $5 trillion economy by FY25. It seems making the economy a 5 trillion economy was at the heart of the economic survey.

 

The stock markets were not impressed and the Sensex retreated slightly from the days highs.

For many months we have been hearing the same story: Economic growth has slowed, joblessness has risen, corporate earnings are disappointing and private sector investment is not happening.

It's time to unleash the animal spirits

For animal spirits to be unleashed, we need increased government expenditure. With the fiscal deficit running high, how is that going to be made possible?

Expectations are already running high for major sops. While the farming sector is expecting more in terms of cash benefits, individual tax payers are also expecting some more sops.

It is going to be Finance Minister Nirmala Sitharaman's first Union Budget and it would be a surprise if major sops are announced, given the fiscal constraints.

In all probability one is looking at an increased and revised fiscal deficit of 3.4 per cent. If the government has Budgetary constraints the most important is that the animal spirits should be unleashed. This can come from boosting private sector investment and creating an environment that is free from excessive controls.

Liquidity issues need to be addressed

The Reserve Bank of India on the other hand must ensure that liquidity conditions are addressed. There has been serious liquidity issues and the housing finance and the NBFC sector is reeling. So it is not only the Union Budget 2019, but, also steps from outside the budget that are crucial.

Economic Survey: GDP Growth Projections Subdued, Time To Unleash Animal Spirits
 

On the other hand a fresh infusion of capital into public sector banks will ensure that banks have money to lend. All in all, it is going to be a Budget that has to be balanced by the Finance Minister, along with adequate support from the RBI.

GoodReturns.in

Read more about: gdp economic growth
Story first published: Thursday, July 4, 2019, 11:56 [IST]
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