The upcoming budget of BJP 2.0 would be about addressing all the issues that the Narendra Modi-led government faced in the past five years and showing a path that would light the way for growth, said experts at the 10th edition of The Finapolis Knowledge Series held in Hyderabad on June 18, 2019.
The Finapolis Knowledge Series is an endeavour by the Karvy group to spread awareness on a variety of topics of interest to businesses, investors and individuals.
At the The Finapolis Knowledge Series, four panelists deliberated on ‘The challenges ahead for BJP 2.0’. The panel comprised Nimesh Chandan, head of equities at Canara Robeco, Himanshu, associate professor at the Jawaharlal Nehru University, M.R. Vikram, chartered accountant and partner of M Anandam and Co, and C Parthasarathy, chairman of the Karvy Group. The discussion was moderated by former resident editor of The Times of India, Kingshuk Nag.
Opening the discussion, Nimesh Chandan described the kind of headwinds the economy faced in the past six years that would pave the way for the policies of the government in the next budget.
"In an economic cycle when excesses are created during a bull run, they have to be cleared with slowdowns. Most of the macroeconomic parameters peaked around 2012. From there the excesses that were created needed to be cooled off," said Nimesh Chandan of Canara Robeco.
"We had a very tight monetary policy after the experiences we had in 2013 when we experienced a very sharp fall in the currency in a very short time. The RBI kept a very tight leash on interest rates and also maintained tight liquidity. Government spending was also tightened and the fiscal deficit of 5.8% was brought down to 3.4%,” he said.
“Meanwhile, we had two major changes — the GST and demonetisation. All these changes impacted businesses, affected demand, Capex growth, capacity utilisation and the informal sector. The banks, who were the financiers of growth, underwent high provisioning. Instead of growing credit, banks were focused more on capital conservations and raising capital for provisions,” said Chandan.
The agrarian crisis has aggravated in the past five years, said JNU associate professor Himanshu, and with the monsoon deficit for the year already crossing 40% it is likely to get worse. Farm prices continue to remain low. After affecting Maharashtra and Karnataka, the farm crisis has now extended to Punjab and Haryana.
“Unfortunately for the government, breathers such as a collapse of petroleum prices that happened in 2014 are no longer there,” he said. To add to the woes, the government has exhausted its fiscal capacity by announcing populist schemes like the PM KISAN subsidy in the interim budget and extending it further after coming back to power.
“We are dealing with a huge macro-economic problem of demand deflation in the rural economy in the past three-four years. The automobile companies have cut production, FMCG and credit growth numbers are not encouraging and that is the biggest challenge for the new government. The government would have to think out-of-the-box and kick-start the economy, which has almost come to a grinding halt,” he said.
“If you are solving a wrong problem based on the data, then the real problem is missed out,” said M.R Vikram referring to certain doubts raised by former chief economic advisor Arvind Subramanian on GDP data.
“We were assuming India is growing at a certain rate. Now we are being told that it could be 2.5% lesser than that number, which makes it almost one third of the number we were assuming. The central government is not the only constituent that is spending or earning. Both the state and the Centre make plans based on the data that comes from the Central Statistical Commission. Now, they are all faced with a fundamental logic change which does not capture the mood of the nation,” he said.
“Also, in the last two years there has been a dissonance between the RBI and the government. Hopefully, this dissonance will be eliminated in the next few years,” he added.
“Recapitilisation of banks is another challenge for the government and probably the government could use the excess with the RBI to recapitalise banks,” he added.
“Beyond all this, we need to work on education and health in tandem with the states. Most governments do not pay attention to these sectors and that I hope will change in the next five years with the BJP returning to power with a clear mandate. These are priorities of the government yet the budget numbers do not reflect it,” he said.
Listing 14 areas of concern for the government, C Parthasarathy, chairman of the Karvy Group, said during the last year-and-a-half consumer spending has declined substantially and the government needs to focus on this.
“Also, there has hardly been any concerted attempt to generate employment. The promise of the previous government was to provide 20 million jobs annually. The government is the biggest employment generator and it has to kick-start a process to provide avenues for employment,” he added.
The Finapolis Knowledge Series ended with the panelists taking a volley of questions from the audience on macro-economic growth, manufacturing to agriculture.