Budget 2020: Markets have discounted breach of fiscal deficit target for FY 20 & FY 21, says Nilesh Shah

Dalal Street is expecting India will follow the US model of using fiscal space to stimulate economic growth, Nilesh Shah, MD and CEO, Kotak Mahindra Asset Management Company, told IANS in an interview (#BudgetOnZee).

During the global crisis, the US had increased the federal fiscal deficit to 10 per cent-plus levels. According to Shah, markets can accept deviation from the path of fiscal prudence if it is used for investment purpose and stimulating economic growth through multiplier effect. "To balance the FY 21 budget, the government needs to raise tax and non-tax revenue. Tax revenues can be raised by increasing taxes or improving compliance. Our preference would be to plug the loopholes, improve monitoring and compliance to enhance tax revenue," Shah said.

The government can also follow the example of the United Kingdom under Margaret Thatcher, which pursued an aggressive asset divestment programme whereby assets like government bungalows, public parks, highways and other real estate were monetised to raise non-tax revenue, Shah told IANS.

On the FMCG sector, Shah the rural growth revival requires multiple push and that there has been an increase in the prices of milk, vegetables, spices and food grains. It is estimated that at current prices, there will be a shift of about Rs 200,000 crore from urban consumers and government to rural economy.

The upcoming Budget is especially important as several data data points "show that current softness in consumption is more complex than just simple demand slowdown," Shah said.

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However, the implementation of OROP and 7th pay commission has also put substantial money in the pocket of consumers on a yearly basis. Farm Loan waivers over the last 6 years have also taken out a debt of more than Rs 400,000 crore from rural farmers, Shah said.