INSUBCONTINENT EXCLUSIVE:
By Abhijit Roy Chowdhury, Bibhudatta Pradhan, Shruti Srivastava and Siddhartha SinghIndian Prime Minister Narendra Modi made a populist push
in his final budget before elections, cutting taxes for middle-class voters and giving cash handouts to farmers.
The government will
allocate 750 billion-rupee ($10.6 billion) a year for the cash plan for about 120 million farmers and give taxpayers 185 billion rupees of
relief in the year to March 2020, Finance Minister Piyush Goyal said in his budget speech in New Delhi on Friday.
In the process, the
government will widen its fiscal deficit targets for the current financial year and next to 3.4 percent of gross domestic product and borrow
Bonds and the rupee fell on news of the debt plans, while the tax cuts helped to buoy stocks.
“Ongoing slippage from the government’s
budgeted fiscal deficit targets over the past two years, and our expectation that the government will face challenges meeting its target
again this coming fiscal year does not bode well for medium term fiscal consolidation,” said Gene Fang, an associate managing director at
Moody’s Investors Service
“We view this continued slippage as credit negative for the sovereign.”
The government will give 6,000 rupees a year to about 120
million small farmers, said Goyal, who stepped in as finance minister last week after Arun Jaitley went on medical leave
Individuals with an annual income of 500,000 rupees or less will be exempt from tax, he said.
Bond Yields“India is solidly back on track
and marching towards growth and prosperity,” the minister said
“We have prepared the foundation for sustainable growth, progress and better quality of life for all our people.”
The government will
borrow a record 7.1 trillion rupees in the year beginning April 1, compared with 5.7 trillion rupees in the current fiscal year
Yields on the most-traded 2028 bonds rose 12 basis points to 7.61 percent after Goyal concluded his speech.
The budget -- a 28.7
trillion-rupee spending plan -- was Modi’s last attempt at reversing fortunes after his Bharatiya Janata Party lost control of three key
states in regional elections last month
The government also boosted allocations to rural infrastructure and employment programs.
“The focus of the budget is on the real estate
sector, rural economy and consumption,” Keki Mistry, chief executive officer of Housing Development Finance Corp
said in an interview with BloombergQuint TV
“At the end of the day it benefits the entire economy,’’ because India is a domestic-focused economy, he said.
What Our Economists
Say“The populist moves announced in the budget clearly indicate that the government has moved into election mode.“While full details are
not yet available, we believe some of the revenue projections could be too optimistic to allow for higher capital expenditures in the
budget.”-- Abhishek Gupta, Bloomberg EconomicsTo make up for some of the revenue shortfall in the current financial year, Goyal budgeted
higher dividends from the central bank and state-owned lenders
He penciled in 829.1 billion rupees as dividends from the Reserve Bank of India and the state-run lenders next year, up 12 percent.
While
inflation at an 18-month low, weakening consumer demand and mounting global risks would have given Shaktikanta Das, the new RBI governor, an
opportunity to support the economy through interest rate cuts, the expansionary budget puts him in a spot.
“We expect the Reserve Bank of
India to view the budget as inflationary and flag this as an upside risk to inflation,” said Sonal Varma, chief India economist at Nomura
“The expansionary fiscal impulse, at the margin, negates the need for the Reserve Bank of India to consider monetary easing at this
stage.”
The central bank’s the Monetary Policy Committee will review rates next week, with the decision due Feb
7.
Other key details of the budget:Total subsidies seen at 2.97 trillion rupees in FY20Defense spending allocation at 3 trillion
rupeesRailways gets 645.8 billion rupees for capital expenditureIncome from asset sales seen at 900 billion rupees in FY20Dividend income
from central bank, other banks seen at 829 billion rupees in FY20India poised to become $5 trillion economy in next 5 yearsExempts notional
rent payable on a second house owned by familiesExtends by 2 years, the exemption of notional levy on unsold properties
