Macro-economic Framework Statement (MFS) 2020-21 predicts rebound in GDP growth from first quarter of 2020-21

Government expected to return to glide path of Fiscal Consolidation in the Medium Term

Focus on enhancing creation of Capital Assets, with Water Conservation and Sanitation as focus sectors

MFS 2020-21 predicts Nominal Growth of the Economy at 10% in FY 2020-21

Despite a temporary moderation in the Gross Domestic Product (GDP) growth in 2019-20 owing to global headwinds and challenges in the domestic financial sector, the fundamentals of the Indian economy remain strong and GDP growth is expected to rebound from the first quarter of 2020-21. This is noted in the Macro-economic Framework Statement (MFS) 2020-21 which describes the return path of fiscal consolidation without compromising the needs of investment out of public funds. The government has revised the fiscal roadmap in the near term and limited the fiscal deficit to 3.8% of the GDP in RE 2019-20 and 3.5% in 2020-21, states the MFS. 

Further, the document states that the consumer price inflation has remained within the targeted limits set by the Monetary Policy Committee (MPC) of the RBI and the government is expected to return to the glide path of fiscal consolidation in the medium term. In her Budget speech on the floor of the Parliament today, Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman stated that the government has undertaken very significant tax reforms for boosting investments. Also, keeping in mind commitment of the Government towards various schemes and need for improvement in quality of life, level of expenditure has been kept at ₹ 30.42 lakh crores in BE 2020-21, as compared to ₹ 26.98 lakh crores in RE 2019-20. 

Global confidence in the Indian economy improved as reflected in growing inflows of net FDI and an all time high accumulation of foreign exchange reserves of US$ 457.5 billion as in December, 2019. India moving up by 14 positions to 63^rd rank in World Bank's Ease of Doing Business 2020 Report, has contributed among others to this increased global confidence, the MFS document notes. 

Talking about the critical measures announced/implemented by Government in 2019-20 to catalyze the rebound of the GDP, the MFS cites hike in MSP of agricultural crops, reduction in corporate tax rate, incentives for start-ups and expansion of MSMEs, recapitalization of public sector banks, streamlining of many labour laws at the central government level, among others. To improve the physical quality of life, the Government has also announced the National Infrastructure Pipeline (NIP) of projects worth ₹ 102 lakh crores, which would commence in phases from 2020-21 to 2024-25. 

Describing the strategic priorities for the ensuing year, the MFS states that the main focus of the Government on expenditure side will be to enhance creation of capital assets, with water conservation and sanitation to be the focus sectors. On the receipt side, resource mobilization will be sought through sale of strategic assets, the document adds. 

Delving into the challenges facing the economy, the MFS notes that the major challenges for the economy arise from the external front, mainly due to geo-political tensions in the Middle East and rising crude oil prices due to supply disruption which may in turn decelerate growth and increase inflation. Challenges cited on the domestic front are revival of investments and savings. 

According to the MFS, positive prospects for the economy are continuation of structural reforms that will revive growth and expected normalization of credit flow as investment picks up induced by a cut in the corporate tax rate and anticipated transmission of repo rate cuts earlier implemented by the MPC. Global economic growth is expected to pick up in 2020 which could also support India's growth. In view of a positive outlook on economic rebound, the MFS predicts the nominal growth of the economy at 10% in FY 2020-21

Fiscal consolidation and capital investment focus aim to restore growth trajectory and bolster macroeconomic stability. The MFS 2020 21 projects GDP growth to rebound from Q1 2020 21 while pursuing fiscal consolidation alongside sustained public investment. It prioritizes creation of capital assets-notably water conservation and sanitation-and contemplates resource mobilization via strategic asset sales. The MFS links recovery to measures such as corporate tax cuts, bank recapitalization, and reforms expected to normalize credit flow, while warning that external geopolitical tensions and oil price shocks and domestic investment shortfalls pose risks. Nominal growth for FY 2020 21 is projected at 10%.