Budget 2021: Expectations close to Reality

There are a lot of expectations from the upcoming budget. Intellectuals are speculating reforms, increased government spendings etc. But to a person just looking at the stock indices or quarter growth numbers. These measures are not so much of a necessity. Well, we will be addressing just why this matters so much now, we will also speculate a little bit on what possible steps the government will take.

Deception:

Indian stock markets except for the past few days were on an upheaval. Is it indicative of a rising economy, not really, they were rising even when the quarter growth was negative? Even though many still are optimistic about stock markets being a barometer of the economy, I would like to present some pieces of evidence which says otherwise:

1. Index (Nifty in our case) is dominated by the market price of a few companies. Consequently, in no small extent, the performance of these companies determine the trends in the market. Since a large proportion of companies remain unrepresented, the indices provide a localised focus on the state of the economy while ignoring the complete picture.
2. The skewed representation can also be seen when analysing the sector-wise distribution of the index’s components. With IT, Financial Services, Automobiles and Consumer Goods forming the significant proportion of the index, the above argument can be used again to reject the hypothesis.
3. Last but not least, stocks price movement can be highly psychological in nature, while an emerging company’s good performance may not boost an investor’s confidence. A poor quarter indeed leads to improper retribution.

Since by now, we have seen that stock prices can be deceptive. This is not just proven during the covid times but also before. In fact, the growth rate started plummeting since 2017, the reason why the economy needs reforms all the more. 

The Awakening Shock:

There is no denying that the economy was weakening even before the Covid but the year 2020 has definitely led to extreme movements in the indicators. The movements sharp enough to necessarily be contained, if not these may seriously dent India’s growth aspirations. Some of these indicators definitely deserve mention, and they are:

1. Unemployment: Both the formal and informal sectors have witnessed substantial unemployment. With increasing unemployment purchasing power reduces, this leads to a reduction in demand. The falling demand prevents the revival of the economy. The contracting demand situation must be tackled immediately, and this can be done by enhanced capital expenditure or welfare spending.
2. Both of the above measures suggested have associated consequences; their implementation definitely will lead to an expansion of fiscal deficit. It’s a very thin rope, and the government has to walk it down, balancing both the widening deficit and plummeting demands.

Rowing the boat:

Increased spending will definitely serve as a lifeboat to the economy but to steer ahead, a plethora of structural reforms must be undertaken. The year 2020 has already seen some of these reforms being implemented; some discussed extensively in intellectual circles while some, not so much. Be it labour reforms, MSME reforms, the Farm reforms all of these are intended to bear fruit in the long run. More reforms are expected in the banking sector, especially with increasing bankruptcies, rising bad debts. Reforms are also much awaited in the transportation sector to reduce logistical hurdles and enhanced delivery speed.

These are of course our calculated guess and may not express the complete truth.