Budget 2019: Will Modi government breach fiscal deficit target? Financial Express Online Survey asks experts

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Updated: July 3, 2019 6:58:41 PM

Budget 2019 India: Finance Minister Nirmala Sitharaman is unlikely to breach the 3.4% fiscal deficit target announced for the ongoing financial year

Budget 2019: Will Modi government breach fiscal deficit target?Union Budget 2019 India: Out of the 15 experts who Financial Express Online reached out to, as many as 8 expect Finance Minister Nirmala Sitharaman to stick to the Interim Budget numbers.

Union Budget 2019 India: Finance Minister Nirmala Sitharaman is unlikely to breach the 3.4% fiscal deficit target announced for the ongoing financial year in her Union Budget 2019. More than half the economists and experts polled by Financial Express Online in a pre-Budget 2019 Survey expect the Narendra Modi government to stick to its fiscal deficit target for the ongoing financial year. Out of the 15 experts who Financial Express Online reached out to, as many as 8 expect Finance Minister Nirmala Sitharaman to stick to the Interim Budget numbers of February. However, 4 experts are of the view that given the 5-year low GDP growth, the government will have little option, but to provide a fiscal stimulus. Three analysts are of the view that a minor overshooting of the fiscal deficit target should not be a cause for worry and a balancing act on the growth front is the need of the hour.

Budget 2019 fiscal deficit target: The case for growth stimulus

Says Vikas Vasal, National Leader – Tax, Grant Thornton India, “I think a few basis points here and there should not make a big difference, so far as the fiscal deficit has a sound rationale and is supported by judicious spending, thereby providing necessary stimulus to the economy.” Dr. Arun Singh, Lead Economist, Dun & Bradstreet India believes that given the challenges on the growth front, government expenditures are set to go up. “Revenue collection is unlikely to go up in the short term,” he tells Financial Express Online, adding that he expects the fiscal deficit target to be breached. Rupa Rege-Nitsure of L&T Finance Holdings agrees that the target will be breached marginally because of a shortfall in revenues.

Ranen Banerjee, Partner and Leader Public Finance and Economist, PwC foresees a continuation of several schemes on the welfare front by the government. “The additional expenditures would be met through efficiency assumption derived from direct benefit transfer of most of the subsidies. One ration card for the nation with DBT mode would also result in significant savings in food subsidy. There will be larger allocations to capital outlay to pump prime the expenditure,” Ranen Banerjee told Financial Express Online. “Bank capital infusion requirements and some of expenditure requirements is likely to be met through assumptions of higher dividends from RBI, higher divestment targets and larger tax mop ups through administrative efficiencies,” he added.

Why Modi government should stick to the budgeted fiscal maths

Sachchidanand Shukla, Chief Economist, Mahindra Group is confident that the fiscal deficit number will remain at 3.4%. “Over the last 2 years, the government has not relaxed the target and they have infact reduced the fiscal deficit. They also announced in the Interim Budget that they will stick to the fiscal deficit number,” he tells Financial Express Online.

Bidisha Ganguly, Chief Economist, CII feels that given that total public sector borrowing (including off-Budget borrowing) is quite high, the government is aware that it has little fiscal space to expand any further. Madan Sabnavis, Chief Economist, CARE Ratings told Financial Express Online that the government can defer or rollover payments or cut discretionary expenditure instead of breaching the fiscal deficit target. DK Srivastava, Chief Policy Advisor, EY expects the government to go for off-Budget financing of government expenditure.

Catch-22 situation on fiscal deficit

According to Anita Gandhi, Whole Time Director, Arihant Capital Markets it’s a catch 22 situation for the government. “The government needs more revenues from taxes and the industry needs more tax sops for growth. The government is required to spend more money on infrastructure, as private sector has burnt its fingers earlier,” she tells Financial Express Online. “PSU banks need recapitalization. We need to see how the balancing job is done,” she adds.

The fiscal deficit number is closely watched by not just economists, but also international ratings agencies to gauge the financial health and soundness of the economy and its growth. Sandeep Raina, Associate Director, Edelweiss Professional Investor Research says that a downgrade from rating agencies will be the biggest threat that the government will keep in mind. “The fiscal deficit target will not be breached to the level that it becomes alarming,” he tells Financial Express Online. “The government would prefer 1% lesser growth than risk a downgrade by substantially breaching the fiscal deficit target,” he concludes.

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