Budget 2016: Finance minister Arun Jaitley is not likely to present a game-changer budget on February 29, but is expected to present a “run-of-the-mill” budget, a Nomura report said. However, the government would stick to a fiscal deficit target of 3.5% of GDP in FY17 with credible assumptions.
In the Budget for 2015-16, Jaitley had stretched the fiscal deficit target to 3.9 per cent from the earlier 3.6 per cent to address growth concerns. As per the roadmap, deficit is to be brought down to 3.5 per cent of GDP in 2016-17, from 3.9 per cent in 2015-16.
According to the Japanese financial services major, the budget will be a tightrope walk for the government.
Below are the 5 budget expectations from Nomura:
1. Government may meet its fiscal deficit target of 3.9% of GDP in FY16, but expect slippage to 3.7% of GDP in FY17 owing to the Seventh Pay Commission (including arrears) and the One Rank One Pension scheme.
2. Quality of fiscal consolidation to deteriorate as wages and pensions rise, while budgeted capex moderates. Instead, we expect a step-up in off-balance-sheet financing of infrastructure (via public sector enterprises and the NIIF).
3. Net market borrowing to rise to Rs 4.8 trillion in FY17 (FY16: INR4.4trn) and gross borrowing to increase to Rs 6.5 trillion in FY17 from Rs 5.85 trillion in FY16.
4. FM Arun Jaitley may increase the services tax rate to 16% from 14.5% and a reduction in the corporate tax rate to 29%, from 30%, alongside lower exemptions this budget.
5. Other key areas in the budget are likely to include: (1) boosting rural infrastructure; (2) public sector bank reforms; (3) skilling and employment incentives; and (4) start-up India.