Eco Survey has right vibes; will Budget reflect same thinking, asks D-Street

Here is what economists and analyst read into the fine prints of the survey.

India is facing its worst economic slowdown in a decade. Growth fell to 4.5% in the July-September quarter. Consequently, the Budget deficit may need to exceed this year’s target, 3.3% of gross domestic product, the government said in an economic survey released on Friday.

“Going forward, considering the urgent priority of the government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year,” Krishnamurthy Subramanian, Chief Economic Adviser to the Finance Ministry, said in the report.

Here is what economists and analyst read into the fine prints of the survey:

Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra AMC
The Economic Survey projects economic growth at 6-6.5 % for FY21. This could be a good indicator of Budget being pro-growth as the GDP growth for FY20 is at 5%. Hence it will be important to watch out the fiscal deficit numbers for FY21. A very wide variance from the Fiscal Responsibility and Budget Management (FRBM) glide path may disappoint the market. There is also an expectation that headline CPI inflation is likely to decline by year end. Hence it is likely that monetary accommodation may continue, though near-term chances of rate cuts seem to be a tad low. Bond yields were reasonably supported post presenting of the economic survey

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

As the lavender colour of the Economic Survey indicates, the survey is a mix of old and new. The emphasis on wealth creation and it's beneficial effects on the economy is laudable. The argument in favour of pro- business policies, the need for aggressive divestment of CPSEs, concerns on the injurious effects of freebies and debt waivers are all pro- market views that are to be welcomed. The survey leaves little room for doubt about economic thinking. The big question is whether the budget too will reflect the same thinking.

Deepthi Mary Mathew, Economist, Geojit Financial Services

The Survey highlights the difficult fiscal situation ,and possible crowding out of private investors due to the increased market borrowing by the government. However, the survey also stresses the need for relaxation of fiscal deficit target for the current year to stimulate growth in the economy. In this background, it is expected that the fiscal deficit target for FY21 would also settle at a higher range. It is welcoming that the survey emphasizes the need for improving the business climate that would aid the economy to achieve the target of $5trillion."

Ranjan Chakravarty, Economist and Product Strategist, MSE

This Economic Survey is absolutely one of the best ever. The analysis is scrupulously fair, the detailed diagnosis, the cataloging of the systemic issues and the prognosis are all on point and exactly correct. We applaud Dr. Subramanian for a fantastic job and endorse the short term 5% and medium-term 6.5% growth forecasts. We have ourselves forecast that recovery is coming in 2H 2020 and this Economic Survey independently verifies it.

Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC
The Economic Survey emphasises on free-market dynamics and trust, conducive policies for entrepreneurship, labour-intensive export plan and the need to avoid crony capitalism and irrelevant government intervention. It proposes a health score for NBFC companies and a case for aggressive disinvestment, with the latter being widely expected in FY21. We expect a fiscal deficit of 3.8% of GDP in FY20 and 3.5% in FY21.

Niranjan Hiranandani, President, Assocham & Naredco
We welcome positive outlook of Economic Survey, which projected 6-6.5% economic growth in the next financial year. However, we strongly advocate that the government needs to announce bolder policy and fiscal measures to recover from a sharp economic downturn and somnolent market scenario. The Survey highlighted the need to relax fiscal slippage in terms of prudent spending with a primary objective to bounce back from economic doldrums. As India Inc well appreciates the significant progress of nation’s global rankings across various parameters, there is a lot more bridges to build for nullifying the economic gaps. Proactive measures should be undertaken to push India amongst the top 50 nations in the global pecking order of Ease of doing business mechanism and make it globally competitive market.

Karan Mehrishi, Lead Economist, Acuité Ratings & Research
Economic Survey highlighted importance of reforms in achieving the $5 trillion GDP target. The expectation is that economic recovery will start H2FY20 onwards, marking the start of a 12-quarter business cycle. The recent reforms such as public sector bank mergers, enactment of the IBC along with GST led formalisation have seen off the initial challenges and are expected to fuel the recovery going forward. The need for augmenting fixed investments by households along with public and private sector has also been pointed out. It rightly advises a guard against inflationary tendencies, but an accommodative monetary policy is advised, nonetheless. Overall, the economic survey maintains a cautious optimism and pegs FY21 GDP growth at 6-6.5%.