By Nageshwar Patnaik in Bhubaneswar, January 18, 2020: With the Indian economy pegged to grow at 5% in the current fiscal, the slowest pace of annual growth since 2012-13 and retail inflation shooting up to a five-and-a-half-year high of 7.35% in December going past the RBI’s limit of 6 per cent, the knives are out for finance minister Nirmala Sitharaman to come up with a realistic budget on February 1 to rescue the economy from a slump.

The growth projected is slower than the 6.8% recorded in 2018-19. In the quarter ended September 2019, growth had hit a six-year-low at 4.5%, amid lukewarm demand and listless private investment. With global growth still plumbing lows, the big challenge before the finance minister is to bring back one of the twin engines of growth—consumption and investment.

Given the state of the economy, this is perhaps the most crucial budget under the Modi regime. The taxpayers’ wish list always will be a long one. But, the government has no option but to strike a balance between dreams and reality so that the exchequer does not run dry and fiscal deficit does not go beyond the stipulated limit.

Both private and government investment is down. Credit growth is decelerating, credit to industries is shrinking, and revenue collections have faltered to hit the lowest level in a decade.

Foreign Direct Investment (FDI) is important as India would require huge investments in the coming years to overhaul its infrastructure sector to boost growth. Healthy growth in foreign inflows helps maintain the balance of payments and the value of the rupee. Despite a slowdown in the global economy, India received a $27.2-billion foreign investment in the first half of 2019 and the pace is likely to be sustained thereafter.

But, eminent economist Nouriel Roubini, who predicted the 2008 crisis, recently remarked that problems on Indian streets were a concern for foreign investors and Narendra Modi-led government should focus on the economy and not get distracted by ideological or ethnic issues. The violent protests opposing Citizenship Amendment Act (CAA) already has impacted both domestic and foreign investments in the country.

Even many European countries have started showing their uneasiness in investing in India over the present conditions with protests against the government’s CAA. Peace and stability is a prerequisite for the economy getting back on track, and that needs to be in place before attending to administering any remedies for the country’s current economic ills.

How the Modi government is going to handle the whole economic crisis is the biggest question of the hour. A lot of initiatives are to be made for; making foreign investors optimistic about their investments in India but at the same time has to keep the interest of their citizens into consideration who after all matters most.

The “reform-focused” Modi government must show a good track record in implementing previously-announced reforms. Unfortunately, that has not always been the case. There are several implementable reforms that the Modi government has announced in recent years that continue to languish. Given the state of the economy today, it is time the Modi government looks back to itself for inspiration while demonstrating it can get things done.

It’s good that the government is no longer in denial mode and listening to voices from the ‘other side of the table’. On January 6, Prime Minister Narendra Modi met some industry leaders in New Delhi. On January 9, he also met some economists and members of the NITI Aayog in the run-up to the Union Budget on February 1. Finance Minister Nirmala Sitharaman’s absence however raised quite a furor with some experts predicting her replacement after the budget.

What is still worrying is the setback to consumption, especially to rural demand, not surprising given that the country has been in the throes of agrarian distress since global commodity prices collapsed in 2008.

The Modi government has its best chance to re-invigorate the Indian economy when its presents the first budget of the new decade. It is noteworthy to mention that the government’s out-of-the-box idea to effect a mid-course correction in corporate tax rates has found little or no traction with India Inc. The move has triggered expectations of a similar move on income taxes. Given the fiscal situations, the finance minister will have to be more bold to actually follow through and match the expectations of a restless middle class.

Only a few weeks ago, the government had announced the Rs 100 lakh crore infrastructure push. Compared to the actual infrastructure spending of Rs 36 lakh crore in FY13-17—the numbers for FY18-19 given by the government are estimates—the government is looking at almost trebling this over FY20-25. Indeed, while a fourth of the infra-spend is to be made in the power sector, state electricity boards remain loss-making and strapped for cash, and owe the private sector as much as Rs 46,000 crore. Who is going to invest in the power sector unless, the government fixes the problem? One fifth of the investment is to be in the roads sector where, from 85% in 2013, the share of the private sector in road awards is zero today.

Over the years, borrowings have been increasingly used to fund consumption expenditure and a considerable part of Capital Expenditure (capex) incurred is not on creation of productive capital assets. In FY20, the government budgeted a FD of Rs 7,03,760 crore. Budgeted capex is only Rs 3,38,569 crore—48% of the FD. The load of government borrowings needs to be reduced in the interest of the economy instead of being relaxed even in the current slowdown.

A few changes are needed immediately and the coming budget offers a great opportunity for the government to announce a clear plan to resurrect the Indian economy.