about 8 months ago
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Even before we could get the GDP numbers, the fiscal deficit (FD) for April-October was almost like a premonition.

Fiscal deficit came in at 102.4%, crossing the full year target, highlighting the deep pit which the Govt has dug for itself. FD was at Rs.7.2 lakh crore v/s budgeted target of Rs.7.03 lakh crore. Mainly on the back of weak tax collection, the revenue gap was at Rs.5.46 lakh crore. How the Govt will meet its FD target and meet its divestment target of Rs.1.05 lakh crore.

And data on the eight core sector growth for October was also not good – it contracted by 5.8% from 5.2% (MoM). This in turn means that Q3 GDP will also be pretty bad.

It was under the weight of all this data that we awaited the Q2FY20 GDP. As expected, the GDP was at 4.5%, going below the psychological 5%. Lifted by public administration and defence, the GDP was held at 4.5% or else it would have been closer to 4%.

This disappointing number is not a surprise as all data coming in had already prepared us for a rough ride – the consistently falling monthly IIP numbers, falling car sales, NBFC crisis, global slowdown, weak rural spending and shrinking exports. Obviously the Govt put the onus all on RBI to kick start the sagging economy, thinking that a rate cut alone would have helped, forgetting that banks are not passing on the cuts to the consumers. Govt did eventually step in with corporate tax cuts, realty fund, privatization and more but it all came a tad too late and it never really was for those affected; it went on to benefit only a small section of the industry. Tax collections are falling and fiscal deficit is burgeoning, which in turn, at least logically means that there is very little room left for the Govt to spur growth through spending.

These problems are known and ironically that in itself pushed the markets to new highs as every time bad news on the economy came in, hopes of more stimulus, this time tax cuts for individuals and tax cuts on equities ran high. This time around, unless the Govt rolls its sleeves and gives some real crucial sops for the consumer directly, morale will remain low. The Govt needs to ensure that rate cuts do get transmitted to the people. RBI will also be now under pressure for more rate cuts but then again, it needs to come to the people or else, its just meaningless.

The silver lining – FY21 will be a much better year as all the stimuli which the Govt announced this fiscal will start paying dividends in the next. We are in a deep trough but we can only go up from here – it’s better to always look at the brighter side or else every sunrise will look dark.

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