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04 February
2019
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India (The Total
Investment & Insurance Solutions)
Fitch Solutions, the research arm of Fitch
Group, Monday projected the government's fiscal deficit to overshoot the
budgeted target by 0.2 per cent to 3.6 per cent of GDP in 2019-20 fiscal. It
said that 2019-20 Budget appears to show a strong populist bent in the run up
to the General election due by May 2019.
It is on expected lines considering that the
ruling Bharatiya Janata Party (BJP) is looking to shore up its popularity
following its loss of three strongholds in agrarian states at the November/December
2018 state legislative assembly elections, it stated. "We believe that
expenditure growth will exceed the government's projections, giving our
expectation for high election spending and the budget speech's repeated
emphasis that 'if necessary, additional funds will be provided'. Additionally,
the government's revenue growth projections also appear too optimistic given
its sweeping tax rebates for the middle class and small business," Fitch
Solutions said. Accordingly, Fitch Solutions revised its forecast for the
central government fiscal deficit to come in at 3.6 per cent of GDP in FY
2019-20, from 3 per cent previously, which reflects our expectation for a wider
fiscal deficit in FY 2019-20 versus FY2018-19.
"We believe that continued fiscal
stimulus by the central government will see the government miss its goal of
lowering its fiscal deficit to 3 per cent of GDP by FY2020-21," it said in
a note titled 'India's Populist FY2019-20 Budget To Delay Fiscal
Consolidation'.
The central government plans to spend a total
of Rs 27.8 lakh crore in fiscal 2019-20, a 13.3 per cent increase over the
2018-19 revised budget estimates. "By contrast, we are looking at
expenditures rising at a quicker rate at around 13.8 per cent, given the
upcoming Lower House election, and the ruling BJP's desire to shore up support
on the ground.
"Although agriculture, rural development
and transport infrastructure NSE -0.33 % remain the largest expenditure areas,
the budget speech focused heavily on agriculture, social welfare, education,
and healthcare, likely aimed at appealing to members of scheduled castes and
scheduled tribes, which form 25 per cent of the total population, and farmers,
which account for 58 per cent of India's labour force," Fitch Solutions
said. It said agriculture spending as a proportion of total expenditures grew
to 5.4 per cent in 2019-20, from 3.5 per cent in the 2018-19 revised budget
estimates, which suggests a populist shift in the government's expenditure
patterns.
The interim Budget for 2019-20 doled out a
scheme under which farmers holding up to 2 hectares of land would get an annual
payout of Rs 6,000 -- a move intended to benefit about 12 crore farmers, among
other measures for middle-class taxpayers. However, there was a 0.1 per cent
slip in the fiscal deficit estimate for the current financial year to 3.4 per
cent. While presenting the Budget, Finance Minister Piyush Goyal had said the
government has provided Rs 20,000 crore in 2018-19 and Rs 75,000 crore in
2019-20 for providing income support to farmers, which has led to the slippage
in the fiscal deficit.The Total
Investment & Insurance Solutions
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