Budget 2019: As sovereign external debt is less than 5% of the GDP, the government intends to raise foreign currency debt in overseas markets to complement the domestic market borrowing.
By Ashutosh Khajuria
Union Budget 2019: This Budget has been in continuation of the interim Budget passed by Parliament in February. The finance Bill is not materially different from the earlier one in terms of the projected fiscal deficit that has now been brought down by further 10 basis points to 3.3% of the GDP. Revenue generation has been tweaked moderately by imposing higher surcharge on income tax for high income individuals with taxable income of Rs 2-5 crore and above Rs 5 crore.
The effective rate of taxation for these two categories would now be 39% and 43%, respectively, for FY20. GST revenue is projected at Rs 6.63 lakh crore against Budget Estimates (BE) of Rs 7.44 lakh crore and Revised Estimates (RE) of Rs 6.44 lakh crore for FY-19. Unlike the BE of FY19, this figure appears to be quite realistic and achievable. While expenditure is budgeted to be 13.4% higher than RE of FY19, revenue receipts are estimated to be 13.5% higher.
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On the non-tax revenue front, the highest increase of 37% is budgeted for dividends and profits from the RBI and other public sector enterprises including the public sector banks (PSBs). This appears quite reasonable in view of turnaround of major PSBs with probably some surplus distribution expected from the RBI after the Jalan committee submits its report.
PSBs would further be strengthened by capital infusion of Rs 70,000 crore. With reduction in non-performing assets (NPAs) as a result of aggressive recovery efforts and the outcome of processes under the Insolvency and Bankruptcy Code (IBC), the overall health of the banking sector is likely to improve. With further capital infusion, the ability to lend to productive sectors would enhance, leading to a higher growth in the economy. This directly contributes to the theme of ‘Indian Economy@$5 trillion by 2025’.
By providing tax incentive to borrowers for affordable housing in the form of allowing additional interest expenses of Rs 150,000 over and above the existing Rs 200,000 as deduction, the housing loans segment will get a boost. This, in turn, will mainly benefit the banks and housing finance companies. The regulation of HFCs has been shifted to the RBI from National Housing Bank. This should help in strengthening regulation by bringing all major lenders viz. banks, NBFCs and HFCs under one regulator and should therefore help maintain financial stability by mitigating contagion risk.
The government will be providing credit enhancement for purchase of higher rated loan pools of NBFCs through sovereign guarantee for six months against first loss up to 10%.
As sovereign external debt is less than 5% of the GDP, the government intends to raise foreign currency debt in overseas markets to complement the domestic market borrowing.
This step will reduce fresh supply of govt securities in the domestic market to the extent of external debt raised. Though a small part of sovereign debt may be raised in foreign currency in overseas markets but raising large amount is prone with risks as Indian sovereign cannot print foreign currency, and therefore, is capped by the sovereign credit rating which presently is Baa2 by Moody’s (equivalent of BBB) and BBB- by Fitch and S&P.
(The author is ED & CFO, Federal Bank)