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    Fiscal deficit may widen to 3.8% for current financial year: Report

    Synopsis

    The country's fiscal deficit for 2019-20 is expected to widen to 3.8 per cent, as per a report.

    A correction in consumption demand is cited as a major reason for a dip in economic growth to a decadal low of 5 per cent.
    Mumbai: The country's fiscal deficit for 2019-20 is expected to widen to 3.8 per cent and the upcoming Budget may set a target of 3.5 per cent for 2020-21, a report said on Friday. The first full-year Budget of the current government, to be presented on February 1, will focus on reviving consumption demand through base-level income tax cuts, interest subvention for small and medium businesses and housing, Bank of America Securities said.

    A correction in consumption demand is cited as a major reason for a dip in economic growth to a decadal low of 5 per cent.

    As calls to revive the growth momentum increase, all eyes are set on Finance Minister Nirmala Sitharaman's strategy on fiscal deficit, as tightening of the gap may not help in the aim.

    "We continue to believe that expansionary counter-cyclical fiscal policy is the need of the hour. We expect the finance minister to target higher fiscal deficits of 3.8 per cent of GDP (up from 3.3 per cent budgeted) in FY20 and 3.5 per cent in FY21," analysts at the American brokerage said.

    It added that the sharp corporate tax cut announced last year will result in a recurring 0.8 per cent sacrifice for the next two years but added that the government has room as per the N K Singh committee report, and also pointed to the long-term fiscal deficit being at 4.5 per cent.

    On the income tax front, there could be a cut at the lower-income group levels to push consumption, while small businesses may be offered a 2 per cent interest subvention on all their borrowings, it said.

    The subvention is necessary to compensate the troubled segment from the 0.85 per cent increase in real lending rates since March, it said adding that the cost of the 2 per cent subvention will come at Rs 21,100 crore or 0.1 per cent of GDP.

    There can also be an announcement of an interest subvention for homebuyers for the first year to rekindle the sagging realty demand, it said.
    ( Originally published on Jan 24, 2020 )
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    2 Comments on this Story

    Shaleen Nath Tripathi408 days ago
    FPI must understand that higher prices/inflation are good for margins/earnings and share prices, though exchange rate risk might be hedged through derivatives... Higher prices are good for supply and investment... Though on correction people would demand more...
    Shri Mahesh409 days ago
    Fiscal deficits are totally Irrelevant. No one including USA, Europe, China, Japan are following fiscal prudence. Let it be 5% or more in India. Do full monetary easing. Let us go to zero or negative interest rates in India like USA wants to. Never listen to others. Make own path and win. Always trust gold and real assets. Cheers
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