February 1, 2019 / 10:29 AM / 22 days ago

Instant View: India government steps up rural funding in last budget before election

(Reuters) - India’s Bharatiya Janata Party-led government poured extra money into support for farmers and a rural jobs program, delivering on Friday its last budget before a general election due by May with the clear aim of winning over votes.

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

“The fiscal deficit of 3.4 percent still looks optical for FY19, and this year we have seen low GST collections. On the revenue side, GST collections are optimistic.”

“I think it’s (tax cuts) a reasonable multiplier for consumption. Their revenue estimates seem to be optimistic, particularly on the GST front, which the government is budgeting at about 18 percent growth rate.”

“If you look at April-December, the growth rate in India’s tax collections is only about 6 percent, so 18 percent looks very aggressive to me.”

AURODEEP NANDI, INDIA ECONOMIST, NOMURA, MUMBAI

“As expected, the budget had a farm charm component – budgeting 0.36 percent of GDP as direct cash transfer for farmers in FY20 and 0.1 percent of GDP in FY19. More expensive options like farm loan waivers have been avoided. The additional bonanza for middle class comes as a surprise. As an expansionary budget, it effectively kicks the fiscal consolidation further down the road.”

DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS & RESEARCH, MUMBAI

“They are building an 18 pct increase in GST (collection) which is really a big number. Going by the average rate, they have earned around 10 percent (more GST) in April-November ... Going from 10 pct to 18 pct is a tall order because we are not increasing the tax rate, we are talking about an increase in collection. Can this amount of 18 pct growth come from improving efficiency? That appears a bit exaggerated.”

UPASNA BHARDWAJ, SENIOR ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

“The fiscal deficit flat at 3.4 percent of GDP, which is a sharp deviation from fiscal consolidation roadmap, is a disappointment. The consequent numbers of both net and gross market borrowings seem higher than the market expectation.”

“Fiscal slippage on the back of more spending to support the consumer class will probably delay the rate cut by the monetary policy committee and these concerns will weigh on the bond markets.”

“The fillip to the consumer/farm demand is expected to provide the much needed support to the fading private consumption demand.”

TANVEE GUPTA JAIN, CHIEF INDIA ECONOMIST, UBS SECURITIES INDIA, MUMBAI

“The fiscal deficit target for this year was largely in line with market expectations but the fiscal deficit target at 3.4 percent for full year 2020 was a little disappointing.”

“Populism remained the focus ahead of elections. The budget provided a consumption boost to farmers and middle-class households. However, it will further delay the much needed investment cycle recovery.”

ANUBHUTI SAHAY, SENIOR ECONOMIST, STANDARD CHARTERED BANK, MUMBAI

“The fiscal deficit targets for FY19 as well as FY20 are far better than market expectations, though there is a slight slippage... It is likely to bring a lot of relief to the market, which was excessively worried about the massive fiscal slippage.”

“Having said that, what we would like to see are its revenue projections and it is possible that the projections might be ambitious at this particular juncture. Maybe once we get the numbers going forward there can be some worries again around the fiscal deficit, whether it can be adhered to or not.”

“The budget was focused on farmers and the middle class that should help consumption and probably support the domestic growth.”

SHILAN SHAH, SENIOR INDIA ECONOMIST, CAPITAL ECONOMICS, SINGAPORE

“Pretty much in line with what was expected. The one thing that has surprised is the extent of election-related sweeteners that have been rolled out.”

“So, we thought there would be less space to announce big giveaways, but the government has actually managed to pull it off, at least on paper.”

“I think ultimately, their spending plans look very unfeasible to me, so I wouldn’t be surprised to see spending get cut later in the year.”

“It looks pretty difficult to achieve but it seems to be based on quite ambitious revenue projections.”

“The biggest stops that we have seen are the giveaways for farmers especially.”

GARIMA KAPOOR, ECONOMIST AND VICE-PRESIDENT, ELARA CAPITAL, MUMBAI

“The budget is clearly farm-focused, with elections on the mind. Farmers, age-old, unorganized sector, MSME and middle class - they’re all finding favor, with the agricultural sector getting the biggest support.”

“The 750 billion rupees in the Centre’s budget for the farmers’ scheme is a huge number, so we need to watch out for where the funding is coming from. If the scheme is implemented well, you can expect consumption to be supported next year.”

“The catch here is, even if the BJP does not come back to power in May, the new government will also implement this scheme because no government will want to look anti-poor or anti-farmer. The government will have to find fresh resources to the tune of 750 billion rupees.”

“Although the equity markets will be happy because of the consumption boost, the bond market may not be, as we need to see the intricacies of how much is getting funded through what root and what deficit numbers.”

“If the government has provided enough consumption boost, then RBI would want to take a cautious stance and would not undertake a rate cut.”

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCE HOLDINGS, MUMBAI

“It’s more of performance reporting and aspirations than any big-ticket changes. This was expected as it is an interim Budget valid for a few months. It needs to be stated in unambiguous fashion that the credit for inflation control and AQR primarily goes to the RBI.”

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, DELHI

“This is on expected lines. There is a slight slip in fiscal deficit.”

“The new income support scheme is tepid, in terms of the actual numbers. It should not lead to a blowout in the fiscal deficit if it indeed is part of the budget when it is finally announced in full form.”

“The only issue here is that there is no substitution away from indirect benefits in the form of subsidies to a direct transfer. This is on top of some benefits they are receiving.”

“If this is the model going forward, let’s see what fiscal implications it might have.”

“This is a top-up on an existing regime and that is something that worries me, but not at this stage.”

Reporting by Tanvi Mehta, Aditya Soni, Chris Thomas, Nikhil Kurian Nainan and Chandini Monnappa in Bengaluru; Compiled by Subhranshu Sahu

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