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Interim Budget 2019: Tough numbers

Interim Budget 2019: Tough numbers

Interim Budget 2019: Tough numbers
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By R Sivakumar  Feb 4, 2019 1:51:48 PM IST (Updated)

The interim Budget 2019 prioritised farm income, the lower middle class and the real estate sector in line with a mildly populist yet expected political bugle march

The interim Budget 2019 prioritised farm income, the lower middle class and the real estate sector in line with a mildly populist yet expected political bugle march. The pro expansionary budget aims to appease the rural heartland but maintained prudence through direct benefit transfers of policy largesse thereby ensuring targeted disbursements given the tight fiscal math and the black money shadow of old policy initiatives. The concern however remains on how the government plans to finance its expanded spending budget.

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The government missed its budget estimates on fiscal deficit and raised its earlier estimates for FY 18 & FY 19 but committed to maintain a glide path to the 3% target, to be achieved by FY 20-21. The upward revision further raises questions on the feasibility of the 3% fiscal deficit target. Furthermore, the revenue estimates on direct tax collections and GST remain optimistic and will need to be watched going forward. The government has tried to play a balancing role by keeping in mind a larger than expected corporate tax collection figure and prudently reducing grants and devolutions to states.
Non tax revenues are likely to be the dark horse as the government is likely to stress its assets in an attempt to raise cash to fund much of its agenda ahead of elections. The PFC-REC deal is a prime example of this. Additional dividend requests from cash rich PSU and a steep divestment have also been relied on to balance the budget
The debt market has taken the budget as a sentimental negative given the higher borrowing targets next year and concerns over the health of the government balance sheet. While the rating agencies are likely to factor this given the clamour for rating hikes earlier Preliminary estimates point to an additional Rs. 25-30k Crore borrowing to fund the revenue shortfall. Keeping in mind the low rural inflation and pressure on food prices, the RBI is likely to maintain rates at the current level and maintain its dovish stance in the upcoming bi-monthly policy meet.
R Sivakumar is Head- Fixed Income, Axis Mutual Fund
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