Workers assemble a car at the Tata Motors factory in Pune, India. Photo: AFP

The Indian government’s budget 2020 proposals failed to impress both foreign and domestic brokerages, which feel it may not help revive economic growth.

They see more pain for the economy in the short-to-medium term, the Business Standard reported.

Morgan Stanley said the budget proposals do not provide help for the ailing rural economy and implied that growth may not show a V-shaped recovery. It also fell short on laying down a bigger privatization agenda.

However, it said the budget provided a more transparent set of fiscal accounts, focused on improving the quality of expenditure with capex-driven spending and raising resources through asset sales. The fiscal deficit target indicated marginal consolidation, which looked achievable.

Goldman Sachs said the budget did not envisage any major stimulus through the budgeted fiscal deficit figures, with the FY21 targeted fiscal deficit to decline to 3.5% of GDP, compared with 3.8% of GDP for FY20.

It also said that unless there was a sharp increase in tax compliance, the government would have to cut current spending.

Moody’s Investor Service said the budget highlighted the fiscal challenges from slower real and nominal growth, which may continue longer than the government expected.

Japan’s Nomura said India’s annual growth in gross domestic product most likely slipped to 4.3% in the last three months of 2019, after dropping to 4.5% the previous quarter, its slowest in more than six years.

It sees the budget as largely neutral for growth and inflation and expected a longer time for economic recovery. It expected GDP growth to slow further to 4.3% in Q4 2019 from 4.5% in Q3, and see a below-trend growth of 5.7% in FY21 from 4.7% in FY20.

Nomura, however, lauded the budget for avoiding growth short-cuts in favor of more durable growth drivers. Execution of this intent remains the key risk.

BofA Securities expressed disappointment over the government’s failure to provide stimulus to real estate and cuts in capital gains tax. It pointed out that though the government had provided some tax relief to individuals, but that was limited in size and came at a cost.

Indian brokerage Motilal Oswal claimed the budget had missed out on boosting consumption. It said another concern was that investments by the government and central public sector enterprises are budgeted to remain stagnant in the financial year 2020-21 (FY21). An economic revival may not happen next year, the brokerage added.

Another brokerage, Edelweiss Securities, said a fiscal push was missing and the budgetary measures may at best cause a modest bounce, aided by liquidity easing, normalization in farm cash flows and stabilization of exports. But it added that a concrete economic revival may be distant.

The budget has also been seen as largely “corporate-friendly” as it exempted companies from paying tax on dividends and instead passed on the burden to recipients. This was in addition to the recent cut in corporate tax rates for which the loss to the exchequer was pegged at 1.45 trillion rupees (US$20 billion).

The Reserve Bank of India’s monetary policy committee will next meet on February 6 and the majority of economists expect it to leave rates unchanged after a recent spike in retail inflation, while signaling scope for easing in the future. Since last year the RBI has cut its benchmark repo rate by 135 basis points, but the debt-ridden banks have not fully passed on the benefits to borrowers.

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