7
NEW DELHI: Budget 2019 was more than just ‘interim’ as it was supposed to be.
The big announcements, including an assured income support and income-tax exemptions, cheered the potential voter base – farmers and he lower middle class.
But analysts says the government’s revenue projections to fund those expenditure look too ambitious.
The government prioritised populism over fiscal prudence and the revenue projections for FY20, including that from GST collection, divestments and RBI dividend targets are too high, they say.
Revenue collection assumptions – a 24.3 per cent YoY rise in revenue receipts in FY20 against 20.5 per cent revised estimate – to arrive at the FY20 fiscal target look very ambitious, global brokerage UBS said in a note.
This is at a time when total expenditure is budgeted to rise to Rs 27.84 lakh crore in FY19-20, which is considerably higher given the low inflation base.
“The government continued to rely on tax buoyancy, higher GST collection, one-off revenue receipts including dividend transfer (Rs 82,900 crore) and divestments (Rs 90,000 crore) even as income-tax rebates were provided to middle class households.
The growth in government spending is estimated to remain buoyant.
The quality of government spending seems to have deteriorated,” it said.
The government has revised fiscal deficit target for FY19 to 3.4 per cent of GDP compared with budgeted 3.3 per cent.
Dalal Street cheered this as some analysts were bracing for a 30 basis points slip in fiscal deficit to 3.5 per cent.
For FY20, the deficit projection is at 3.4 per cent, compared with an earlier projection of 3.1 per cent.
“The deviation from the FY19 fiscal deficit target and the pause on FY20 fiscal consolidation is a negative surprise, relative to our expectations.
The cumulative effect of the cash transfer to farmers and the middle class will be a boost to consumption, but is likely at the cost of crowding out private investment.
This growth mix generally tends to be a negative for macro imbalances,” said Nomura India.
To appease farmers, the government announced direct cash transfer of Rs 6,000 per year to those holding up to 2 hectares of land.
The scheme will cost the government Rs 75,000 crore in FY20, 0.36 per cent of GDP.
Out of this, Rs 20,000 crore will be frontloaded in FY19.
The government also announced a 5 per cent interest rate subvention on the timely repayment of farm loans.
For the middle class, the interim Finance Minister increased income-tax exemption limit to Rs 5,00,000 and proposed a higher standard deduction of Rs 50,000 for the rest.
As far as indirect taxes are concerned, FY20 GST collections are projected to grow at 20 per cent against 9 per cent in FY19.
Edelweiss Securities called the projection a tad optimistic, as it believes a 15 per cent growth projection would have been more reasonable, which would have translated to monthly aggregate run rate of Rs 1.13 lakh crore against the budgeted Rs 1.18 lakh crore.
The run rate for GST collection so far in FY10 is Rs 97,100 crore.
“On the receipts front, while the government has rightly acknowledged a likely shortfall of Rs 1,00,000 crore in GST this year, aggressive targets for individual tax receipts and divestments will reduce the possibility of achievement of FY19RE and FY20BE.
Corporate and indirect tax receipts, however, appear more realistic and achievable,” said Motilal Oswal Securities.
This brokerage suggests there could be a shortage of at least Rs 50,000 crore in actual receipts in FY19, which implies that capital spending could be unchanged vis-à-vis those in FY18, against 20.3 per cent growth as per FY19RE.
Also, while the government appears to have included an interim RBI dividend of Rs 20,000 crore in FY19, Rs 85,000 crore receipt for FY20BE appears ambitious.
