Union Budget 2019: A lot came out of the outgoing Modi government’s kitty — with an aggressive push to return back to power — in the Interim Budget ahead of the Lok Sabha polls. The farmers were finally wooed and the middle class finally got the surprise tax relief they had been waiting for a long time.
Finance Minister Piyush Goyal, however, sounded poll bugle without much deviation from the fiscal deficit target in his maiden Budget presentation. Goyal’s first big announcement was income support of Rs 6,000 per year to farmers with up to 2 hectares of land, and his last was tax exemption on income up to Rs 5 lakh. Meanwhile, fiscal deficit targets are now pegged at 3.4% for both FY19 and FY20.
Interestingly, sops announced in Budget 2019 hinge on ambitious double-digit nominal GDP growth, massive jump in market borrowing and a sharp increase in Goods and Services Tax (GST) and direct tax collections. Any deviation may result in fiscal pressure.
Double-digit nominal GDP growth
“The budget has a positive inclination towards the poor and middle class… This is being backed up on the premise that growth is swift at 11.5% in GDP in nominal terms, which is about 7.5-8% in real terms,” Madan Sabnavis, Chief Economist, Care Ratings, told Financial Express Online.
The nominal GDP growth in the last three years was 10.4%, 10.8% and 10% respectively, before being revised upwards to 10.5%, 11.5% and 11.3%. A higher GDP base likely has given room for an additional expenditure of about Rs 10,000 crore, without any impact on fiscal deficit.
“The fiscal targets can be met provided the GST and direct tax collections improve sharply or else there can be slippages,” Sabnavis added. The government has estimated GST collection at Rs 13.71 lakh crore for the year 2019-20, putting the average monthly collection at Rs 1.14 lakh crore.
Aggressive GST collection projection
A similar projection of Rs 13.48 lakh crore for 2018-19 was made in the last year’s Budget, which, by government’s own revised estimate, will be missed by Rs 1 lakh crore. Against the average GST collection of Rs 97,100 crore in FY19, the government needs Rs 1.14 lakh crore in FY20. “GST collections growth at 18.3% may seem a bit aggressive,” Dhiraj Relli, MD & CEO, HDFC Securities said.
Income tax collection projection along expected lines
For income tax, the government hopes a moderate 17% growth rate year-on-year, which is not too ambitious even as the new threshold is likely to exclude nearly 3 crore people from the tax-payers list.
Higher-than-expected market borrowing
The government is also looking to borrow Rs 70,000 crore from the market — up 25% on-year — to fund the schemes and offset the shortfall in receipts. “From the fiscal deficit angle, the borrowing is higher than expected and the revenue sources might be seen as ambitious. Concerns over fiscal deficit pressure may cause bond markets to remain cautious,” said Killol Pandya, Head – Fixed Income, Essel Mutual Fund.
Besides these factors, expenditure for major schemes have been cut, including Modi’s pet project Swachh Bharat Mission. “The allocation has been reduced by about Rs 8,000 crore in some of the major schemes, while some have witnessed a negligible rise,” Sridhar Kundu, Senior Research Officer at Centre for Budget and Government Accountability told Financial Express Online.
- Swachh Bharat Mission: Reduction of Rs 5,000 crore
- National Ganga Plan: Reduction of Rs 1,250 crore
- National Investment Infrastructure Fund: Reduction of Rs 1,000 crore
- National Social Assistance program: Reduction of Rs 775 crore compared to 2018-19 BE.
via Modi’s last Budget hinges on double digit growth, heavy borrowing, jump in tax collections – The Financial Express