Retail inflation spiked to a 65-month high at 7.35 percent in December from 5.54 percent in November. Many economy watchers expect inflation to remain high in January as well. Meanwhile, GDP in 2019-20 is estimated at an 11-year-low of 5 percent. Other challenges -- such as high unemployment and low productivity in key sectors – also abound. The Union Budget 2020 will be presented against such a macroeconomic backdrop.
Optimists give a bit better picture. They view that there are some preliminary signs – such as robust growth in both manufacturing and services sectors in December, as reflected by the PMI index, and rebound in industrial output in November after three consecutive months of contraction -- that the economy has bottomed out. As far as inflation is concerned, they view that it should cool down gradually with seasonal supply shocks becoming milder.
No doubt, both sides of this argument have merits, but what is more important is that they all agree on one crucial point that Budget 2020-21 must focus on reviving demand. The economy has long been suffering from demand slowdown and to arrest it there is no other way out for the government but to spend more. No doubt, it will be a difficult task due to lower revenues, but if we look around and see whatever is happening, this is the call of the time.