The Union Budget 2019-20 has tried to boost animal spirits in the economy by focusing on industry and the financial sector, and to some extent, infrastructure, even as it returned to fiscal consolidation. The government has targeted to reduce its fiscal deficit to 3.3% of the gross domestic product (GDP) in fiscal 2020 from 3.4% of GDP the previous fiscal.

The budget was characterised by some measures for the manufacturing sector, such as expanding the ambit of companies eligible for lowest corporate tax and benefits for micro, small, and medium enterprises (MSMEs) etc. Recognising investment as a critical driver of growth, the government has proposed to ease various regulations for foreign portfolio investment and foreign direct investment.

Efforts have also been made to adapt to the changing global trade scenario. Income tax exemptions in high-value add sectors like semiconductors can help India gain from trade diversion due to US-China trade war. Implementation of these measures can help boost manufacturing in the medium run.

Moreover, the budget has attempted to ease frictions in financial sector through measures such as one-time partial credit guarantee on purchase of certain NBFC assets, recapitalisation of public sector banks, transferring regulation of housing finance companies to the Reserve Bank of India (RBI), deepening the bond markets, etc.

At the same time, some support to consumption, especially in the rural economy, was given through income support scheme to farmers, higher spending on rural roads construction, and increased allocation to welfare schemes. This, coupled with normal monsoons, and softer interest rates could help revive household consumption spending.

To its credit, the government has shunned ‘steroidal’ boosts to the economy and moderated the fiscal deficit target to 3.3% of GDP for this fiscal.

CRISIL expects GDP growth to accelerate to 7.1% in fiscal 2020, if crude oil prices remain below $70 per barrel and monsoons are normal. However, both these factors remain external risks to watch out for. Any adverse movement in either could pull growth to sub-7%.