The big themes in the NDA government’s last Budget has been the income support scheme for small farmers, pension programme for the unorganised sector and tax-breaks for people with up to ₹5 lakh in taxable income. However, despite the substantial 13 per cent growth in expenditure forecast for FY20, only a modest slippage in fiscal deficit has been projected at 3.4 per cent , as against 3.3 per cent widely anticipated, though the projected gross market borrowing programme at ₹7.04 lakh crore is higher than market expectations.

Further, the quality of expenditure is also showing signs of deterioration with capex rising by 6 per cent whereas revenue expenditure is projected to rise by 14 per cent. The Budget has expectedly focussed on the rural, agricultural and the middle-class tax payers.

The income support scheme for farmers and tax breaks is expected to cost the government close to ₹90,000 crore. This is clearly expected to provide a significant boost to consumption, and would be positive for growth which has been showing signs of sagging since November last year. However, the manner in which the ambitious cash transfer scheme is implemented, in terms of identifying the beneficiaries and ensuring no leakages, remains to be seen. Also, the inflationary impact of these measures is something that will pan out over a period of time.

We did not expect major changes in indirect tax rates in the Interim Budget for FY20. In any case, after the implementation of the GST, indirect tax rates on few items remain under the control of the GoI, as the GST Council decides on changes in GST rates. However, there are some direct tax changes specifically meant for the real estate sector. For instance, income tax on notional rental income on a second self-occupied house will be done away with; in addition, the capital gains tax roll-over benefit on sale of residential property will be extended to purchase of two residential properties now.

For real estate developers, the tax on notional rental income on unsold inventory will not apply for two years from completion, as against the exemption of one year earlier. The government also reiterated its intent to further rationalise GST rates on purchase of residential homes by referring the decision to a group of ministers for recommendations.

Not much for infra

Contrary to expectations, there is no major step-up in allocations towards infrastructure sectors such as affordable housing, national highways or power. However, there is a substantial increase in allocations towards rural roads (by 26 per cent) and railways (by 20 per cent). Surprisingly, there is also no provision for bank recapitalisation in FY20.

The government is confident of meeting its disinvestment target of ₹80,000 crore for the current year, though less than half of the amount has been mobilised so far, and has further stepped up the target to ₹90,000 crore for the next year. Despite the increase in crude prices during the year, petroleum subsidy for FY19 remains unchanged, which as per ICRA estimates, indicates a shortfall of ₹17,000 crore. Similarly, we estimate a shortfall of ₹30,000 crore in the estimate for fertiliser subsidy.

GDP forecast

The forecast of 11.5 per cent for growth of nominal GDP for FY20 appears realistic. The GoI has factored in a growth rate of 13.5 per cent for tax revenues during FY20. Direct taxes are projected to rise at about 15 per cent in FY20, supported by a wider tax base. Indirect taxes are expected to rise at around 12 per cent benefiting from the expected stabilisation of the GST. However, about 21 per cent growth in Central GST collections for FY20 seems optimistic. While the gross borrowings are projected at over ₹7 lakh crore, net borrowing figures are almost unchanged because of increasing reliance on borrowings from the National Small Savings Fund.

Overall, the Budget is clearly focussed on providing a boost to consumption and alleviate the stress in the farm sector. It also provides some reliefs to sectors such as real estate because of their large multiplier effect. It has also laid down the vision document for the next 10 years in addition to highlighting the government’s achievements over the last five years. Overall, though the focus is clearly on prioritising revenue expenditure over capex, what view the Monetary Policy Committee takes on the slippage in fiscal consolidation remains to be seen.

The author is Chief Rating Officer, ICRA. Views are personal

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