The challenge before the Union Finance Minister Nirmala Sitharaman is to present the toughest budget of the last decade. The condition of the economy is poor and now everyone’s eyes are on the budget to give it momentum. People are hoping that the government will make some big announcements in the budget to bring the economy back on track. However, the hands of the government are so tight that it is not understood what to do if the government does.
Challenges before Finance Minister
There are many big challenges before the Finance Ministry. The fiscal deficit is expected to be higher than the target. Similarly, the tax collection is expected to be less than the target. Due to decreasing GDP pace and rising inflation, a situation like stagflation is taking place in which unemployment and demand remain low. Due to these challenges, some of the major challenges before the Finance Minister are:
1. Figures are increasing difficult
According to estimates from various government and non-government agencies, the GDP growth in this financial year could be about 5 percent, 5.8 percent in private consumption, 2 percent in manufacturing and just 2.8 percent in agriculture. If this happens, GDP may be the lowest in 11 years, private consumption is the lowest in 7 years, manufacturing can be the lowest in 15 years and agriculture can be the lowest in 4 years.
2. Inflation regained its height
Recently inflation has gone to a great height. Consumer price based retail inflation (CPI) reached 7.35 percent in December 2019, while retail inflation was only 1.97 percent in January 2019, a year earlier. There is no way that inflation will give some relief to the economy by cutting interest rates.
3. Challenge of Fiscal Deficit
According to the Economic Times, the government had set a target of keeping the fiscal deficit at 3.3 percent of GDP in the budget for FY 2019-20, but it is now very difficult to achieve this target. Till November 2019, the fiscal deficit has been 14.8 percent more than the target.
4. Sluggish Debt Flow
Due to lack of demand and problems in NBFC sector, the pace of loan disbursement of banks and financial institutions has come down drastically. Debt flow from April to January has increased by just 7.6 percent in this financial year, compared to a growth of 14.50 percent in the same period a year ago.
5. Less than Tax Collection target
Tax collection for this financial year can also be less than the target set in the budget by about Rs 2 lakh crore. A target of tax collection of 24.59 lakh crore rupees was set in the budget for the financial year 2019-20, but till November it has been just 20.8 lakh crore rupees. For this reason, the government cannot offer any major relief package this year. If the finance minister makes any reduction in the personal income tax of corporate or people, then this will increase the pressure on the treasury.
6. Difficult to increase Government Spending
To improve the economy, increasing demand is a major measure and for this investment is necessary. The private sector is holding on to cash, in which case the government is the main tyrant. But due to the tax collection falling short of the target, it seems unlikely to increase government spending too much. A target of Rs 3.39 lakh crore capital expenditure was set in the budget for the financial year 2019-20, but till November 2019, the government has been able to spend only Rs 2.14 lakh crore.