EUR 125.00 For Business Accounts Only

MOSL: Fuel or Engines (Economy)-Underappreciated features of Union Budget 2020-21

Fuel or Engines (Economy): Underappreciated features of Union Budget 2020-21; Expect only a modest recovery in FY21/22

 

• In contrast to widespread hopes, the Union Budget 2020-21 had no major economic stimulus for the short term. While meeting such expectations was always difficult considering the financial constraints, there were several features in the budget that are underappreciated, in our view.
• In our three-part pre-budget series, we had discussed in detail about our expectations from the Union Budget 2020-21. Interestingly, many of them have become a reality:
• Targeting the bond yield: The fiscal policy, like the monetary policy, focused on the benchmark bond yield () by refraining from announcing additional G-sec issuances in FY20, helping bring down the benchmark bond yield by 10 basis point (bp) to 6.5%. Moreover, the combined market borrowings by the central government and CPSEs are budgeted at sub-3% of GDP for the first time in 16 years in FY21.
• Attract foreign savings to fund infrastructure: The center has announced various measures to attract foreign savings (), which are necessary to finance investments in the light of falling domestic savings. However, we hope that the government will avoid over reliance on such external support and limit it to only exceptional periods such as now when the current account deficit (CAD) situation is extremely comfortable.