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Last Updated : Feb 06, 2020 05:14 PM IST | Source: Moneycontrol.com

Budget 2020 should boost consumer sentiments

I am confident that budget 2020 will pack enough measures to boost the economy.

Moneycontrol Contributor

Mohit Ralhan

It is extremely important that the government continues in its path of structural reforms in the economy irrespective of the short-term blips. The cleaning of bank's balance sheet, streamlining taxation systems and moving towards formal economy are steps which can cause disruptions in economy but when the dust settles, these steps are likely to prove beneficial for the long-term health of the Indian Economy.

The Budget should focus on fighting specific issues which are hindering growth currently. The budget needs to provide impetus on both fronts of increasing consumerism and raising animal spirits of entrepreneurs. The most critical is increasing consumer's confidence and their propensity to spend, since it will also encourage businesses to kickstart investment cycle. Budget should announce measures which will result in more money in the hands of consumers. It can be in the form of tax breaks and increase in social spending especially targeting rural consumers. Also, there is expectation that the government will announce measures to form special trade and manufacturing zones which can incentivize businesses to commit capital investments.


The Budget should also target specific industries that are going through severe challenges especially auto and banking. The Automobile industry is shifting from BSIV to BSVI norms which is going to increase the automobile prices, further depressing demand. A tax relief to auto industry with mandate to pass it on to the end buyers looks necessary to spur demand in the short term. Also, there is a reasonable demand from the industry to have a supportive vehicle scrappage policy to removal of old and polluting vehicles. One of biggest challenges in the economy today is the liquidity crunch in NBFC industry. The NBFCs largely provide financing to MSME and unorganized sectors, which are critical for growth and employment creation. The government needs to create liquidity channels for NBFCs giving them enough headroom to lend. The government may look for of creating an entity that can purchase troubled assets and help NBFCs in cleaning their balance sheet. Finally, there is the larger elephant in the room of labour reforms. This is one of the biggest structural reforms needed and it would also have political opposition as well. But, for longer term health of Indian economy, it needs to be pushed through sooner.

Given, the current fiscal deficit target of 3.3 percent of GDP, the government also needs to aggressively look for divestments. Over next year, this is going to be a major source of funds for the government as it looks to give tax breaks to spur demand and investments. NITI Aayog has proposed divestments in 26 public sector units and any delay in execution should be prevented through establishing mechanism of better inter-ministerial coordination.

Given that the government has shown significant over last year to tackle the economic challenges, I am confident that budget 2020 will pack enough measures to boost the economy.

(The author is Managing Partner & CIO at TIW Private Equity.)

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First Published on Jan 31, 2020 09:38 pm