‘Budget 2021 Will Be Key To India’s Growth’: HSBC Chief Economist

Pranjul Bhandari explains why the government will need to take action to drive growth, including disinvestment.

3 min read

Video Editor: Vivek Gupta
Video Producer: Shohini Bose


What is the state of the Indian economy ahead of Budget 2021? Is unemployment no longer a concern, as we strive for ‘Atmanirbhar Bharat’ or will the government still need to implement a major economic relief package? Should we be worried about inflation, and will the government increase taxes?

With the opening of Parliament’s Budget Session on Friday, 29 January, all eyes now shift to the upcoming Budget, with many questions surrounding the impact of the coronavirus pandemic on the annual announcement of the government’s monetary, fiscal and tax policies.

The Quint’s Editorial Director Sanjay Pugalia spoke to Pranjul Bhandari, the Chief Economist for HSBC Securities India, to examine some of the most important issues.

Edited excerpts from the interview:

How does the economy look like today and what will drive growth during this pandemic?

India has stood out from the rest of the world in one very key way: mobility has increased, but there has been a fall in new COVID cases. Because this is happening in India, we have been able to continue our economic rebound. However, we will have to be a bit careful going ahead, because after the lockdown, there was a pent-up demand for goods – which has mostly been met now.

So, what will support growth in 2021? Here we have the benefit of pent-up services demand to look at. But for this, a lot of things will need to fall in place, like the vaccination roll-out. I think the Budget this year will play a key role in determining how growth will be in 2021.

In 2020, the government may not have played such a big role and yet India began to rebound. But in 2021, I think the government will have to play a big role if this rebound is to continue.


Can we expect major fiscal support now, given the kind of relief packages that have been introduced in other countries?

Major fiscal support is not possible in a county where the fiscal deficit is already very high. What the government can do is tread a very fine line between supporting growth and maintaining prudence, which is possible. My sense is that the government must spend on a few things generously.

It must spend on the vaccination roll-out, it must spend on social welfare schemes like NREGA, PM KISAN. It must spend on Capex – capital expenditure like roads and bridges and it must spend on anything the banks need.

As a result, I expect expenditure to remain elevated at around 15.4 percent of GDP. Yet the fiscal deficit will have to come down, I expect it will have to come down to around 5.8 percent... The only way this is possible is if revenue goes up.

Should we expect increases in tax, given the government’s poor record at making revenue from disinvestment?

It’s hard to second-guess. But my sense is that it will be best to not change the tax slabs. There is something called policy certainty, tax stability. These things are very important for an economy that has come down from a very volatile period, in which we are trying to give assurances to the private sector that you will now see certainty, so please start investing.

What is the condition of the job market in India at this time?

CMIE data is now showing us that there are around 15 million fewer people employed today than there were a year ago. And I think this is something that we have to be worried about. High-earning people with good jobs have actually increased their savings during the lockdown, which they are now spending which is driving growth.

But at some point the mountain of savings they have made will end, and then the growth support will not be there. And then we will look around at the rest of the country and find that the low earners, who make up 85 percent of the labour force, are not doing very well.

Watch the whole interview for expert answers to some of the biggest concerns that will need to be kept in mind in Budget 2021.

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