Fiscal Deficit Current Affairs - 2019

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Ind-Ra lowers India’s GDP growth forecast in 2019-20 to 6.1% from 6.7% in August 2019

India Ratings and Research (Ind-Ra), a part of Fitch group has lowered India’s gross domestic product (GDP) forecast for financial year (FY) 2019-20 to 6.1%. This was second downgrade in the last two months. Earlier in August 2019, Ind-Ra had revised GDP growth estimate to 6.7% from its earlier forecast of 7.3%. It has cited slowdown in both rural and urban consumption demand growth as one of the key reasons for the downward revision of GDP in its August 2019 forecast.

Ind-Ra Projections

Growth Forecast: GDP growth in the first half of FY 2019-20 to be 5.2% and forecasts it to recover to 6.9% in 2HFY20, mainly on account of the base effect.

Government Measures: The recent measures announced by government to arrest economic slowdown are likely to support growth only in medium-to-long term. Most of the measures announced by government are essentially supply-side response to revive growth.

Bigger challenges faced by economy: It is from demand side as consumption demand has collapsed and private corporate investment is not forthcoming.

Way Forward: There is need is to take measures that will enhance disposable income and put additional money in the hands of rural and urban households. Government-initiated spend on rural infrastructure activities will help to generate large-scale employment that could add/stimulate consumption demand.

Key drivers of inflation in India: They are food and crude oil prices and they stand favourable/benign currently. They are likely to remain the same during the remainder of the financial year.

Fiscal deficit: It has been budgeted at 3.3% of GDP. It could increase to 3.6% of GDP in FY20. Additionally, current account deficit is expected to decline to 1.8% of GDP in FY20 from 2.1% of GDP in FY19, aided by softer crude oil prices. In terms of the domestic currency, Indian rupee will average 70.86 against the dollar in FY20.

Proposed Nyay Scheme: Key Facts

In its election manifesto for the Lok Sabha Elections 2019, the Congress party has announced a Minimum Income scheme Nyuntam Aay Yojna (Nyay) as a surgical strike against poverty.

Key Facts about the Proposed Scheme

  • The Nyay scheme is targeted towards 5 crore families who are the poorest 20 per cent in India.
  • Nyay scheme guarantees each family a cash transfer of Rs. 72,000 a year and as far as possible the money will be transferred to a bank account of a woman in the family.
  • There will a design phase (3 months), followed by pilot and testing phases (6-9 months) before the rollout of the plan.
  • The scheme will be implemented in phases and the estimated cost will be less than 1 per cent of the GDP in the first year, and less than 2 per cent of the GDP in the second year and thereafter.
  • As the nominal GDP grows and the families move out of poverty, the cost will decline as a proportion of the GDP.
  • If brought to power, Congress announces the appointment of an independent panel of economists, social scientists and statisticians to oversee the design, testing, rollout and implementation of the programme. The programme will move from one stage to the other only after a go-ahead from the panel.
  • The Nyay scheme would be a joint scheme of the central and state governments.
  • Nyay scheme will be funded through new revenues and rationalisation of expenditure. Current merit subsidy schemes that are intended to achieve specific objectives will be continued.

Economists say that income-support schemes of this type cannot coexist with subsidies on account of the resultant fiscal burden. On a standalone basis, the proposed scheme, for 5 crore households, will add 1.9 per cent of GDP to the fiscal deficit and the projected outlay could be higher than India’s health budget estimated at about 1.4 per cent of GDP.