Budget 2019-20: Even as the expectations of a fiscal stimulus from Budget 2019 rise, global brokerage firm CLSA says that the government is unlikely to substantially loosen the fiscal deficit target for the financial year.
Budget 2019 India: Even as the expectations of a fiscal stimulus from Budget 2019 rise, global brokerage firm CLSA says that the government is unlikely to substantially loosen the fiscal deficit target for the financial year. Earlier, the Narendra Modi-led government had set a fiscal deficit target of 3.4% for FY20 in the interim Budget in February. “The fiscal deficit continues to be an issue. The revenue stream of the government, and given where the expenditure priorities are, it doesn’t leave the government too much room, or discretionary cash,” Mahesh Nandurkar, India Strategist, CLSA explained in an interview with ET Now. According to the global brokerage firm, revenue targets will also need to be revised downwards by 8-10% in the upcoming Budget along with appropriate cut in FY20 expenditure targets after a 8.6% revenue shortfall in the 2018-19 fiscal year. Given the various constraints, it’s important to understand what policy initiatives the government would take, added Nandurkar. “Clearly we are going through a phase of slowdown, for the last 6-8 months, and this phase is not a temporary one,” he added.
According to Kotak Securities, fiscal deficit management will be difficult for the government, given the constraints. “We model central GFD/GDP at 3.6% (versus 3.4% in the FY2020 interim budget) assuming (1) 15% growth in tax revenues (FY2020 interim budget implies 23% growth, which seems quite high) and (2) 18% growth in total expenditure,” noted the brokerage firm.
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Kotak Securities noted that the government has postponed a portion of its FY2019 expenditure (including food subsidy), which will be a part of FY2020 expenditure. Further, the government may have some leeway on expenditure if it is unable to pay the entire amount earmarked under the PM-KISAN (farm income) scheme due to logistical reasons.
While CLSA feels that any large fiscal support is unlikely, the firm says that the government is likely to announce incremental sops for the housing sector. “Contrary to popular opinion, I think the current slowdown has been caused by housing sector slowdown, and in that context I would be looking forward to some measures, some policy support to the sector, as well,” Nandurkar told the channel. CLSA expects these sops for the housing sector to trigger a capex cycle recovery and promote job creation. Measures such as higher tax deduction limits, improved financing access to developers and incentives for rental housing can help, the brokerage firm noted.