📰 Centre gives up on Triple Talaq bill
•The government has effectively given up on at least two of its more controversial legislations — the Citizenship Amendment Bill and the Triple Talaq Bill — that were awaiting consideration by the Rajya Sabha, after opposition parties made clear that they could not guarantee smooth functioning of the House if any contentious bills were tabled.
•With the numbers stacked against the government on both the contentious issues in the Upper House, the two bills, which had been cleared by the Lok Sabha in the last session, would now lapse once the 16th Lok Sabha’s term ends.
•The decision on the bills to be tabled in the Upper House was taken at a meeting chaired by Rajya Sabha Chairman M. Venkaiah Naidu that included government representatives and leaders of all the opposition parties. The meeting saw Mr. Naidu make an appeal that since it was the last session before the general elections, a sincere effort ought to be made by all to ensure proper functioning of the House in order to send out the right message, said sources, who spoke on condition of anonymity.
•Parliamentary Affairs Minister Narendra Singh Tomar and his deputy Vijay Goel held a 30-minutes-long follow-up meeting with the Leader of Opposition Ghulam Nabi Azad and leaders of other parties. The Samajwadi Party’s Ram Gopal Yadav, Bahujan Samaj Party’s Satish Chandra Mishra, Trinamool Congress’s Derek O’ Brien, DMK’s Kanimozhi, CPI (M)’s T. K. Rangarajan, CPI’s D. Raja, TDP’s C. M. Ramesh and the RJD’s Manoj Jha attended the meeting, according to the sources.
•The Rajya Sabha will now take up only six legislative proposals including one to replace an ordinance during the session. The bills that are slated to be debated include The Companies (Amendment) Bill, 2019, to replace an ordinance, The Trafficking of Persons (Prevention, Protection and Rehabilitation) Bill, 2018, The Arbitration and Conciliation (Amendment) Bill, 2018, The New Delhi International Arbitration Centre Bill, 2019, The Personal Laws (Amendment) Bill, 2019, and The Aadhaar and other Laws (Amendment) Bill, 2019.
•The Rajya Sabha is likely to discuss the Motion of Thanks to the President between February 4-6, the Budget on February 7 and 11, and take up the agreed upon legislations during February 12-13. February 8 is meant for Private Members’ Bills with the next two days being weekend holidays.
No income tax up to ₹5 lakh; ₹6000 per annum for farmers with less than 2 hectares of land; and a mega pension scheme for the unorganised sector workers top the announcements made by Union Finance Minister Piyush Goyal in his Budget speech.
•With a keen eye on the coming general election, the interim Budget 2019-20 contained elements that are aimed at benefiting three major segments of the population — farmers, informal sector workers, and salaried taxpayers — with announcements of an income support scheme for the first, an insurance scheme for the second, and tax exemptions for the third.
•Union Finance Minister Piyush Goyal, in his interim Budget speech on Friday, announced the creation of the Pradhan Mantri Kisan Samman Nidhi Scheme, which is aimed at providing income support to vulnerable landholding farmers. What was notable about the announcement, however, was that he allocated ₹20,000 crore for the scheme for the current financial year.
•Opposition party members were quick to point out that this was designed to evade the Election Commission of India rules on announcements that are allowed to be made in an election year.
•The Minister was, however, silent on how these high-expenditure schemes would be financed. In fact, he even admitted that implementing the farmers’ income transfer scheme was the reason why the government would be missing its fiscal deficit target not just for the current year, but also for the next year. He said the fiscal deficit would be 3.4% of the GDP for both 2018-19 and 2019-20, compared with a target of 3.3% and 3.1% respectively.
•“Under this programme, vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support at the rate of ₹6,000 a year,” Mr. Goyal said. “This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of ₹2,000 each. This programme will be funded by the Government of India and will entail an annual expenditure of ₹75,000 crore.”
•While keeping tax rates unchanged, he announced that those earning up to ₹5 lakh a year would be exempt from income tax. This, he said, effectively meant that those earning ₹6.5 lakh a year would not need to pay tax if they made full use of the ₹1.5 lakh exemption available under Section 80C of the Income Tax Act.
•“This neo-middle class required certainties about their future tax liabilities and to save them from the refund process, we have given benefit to this category,” he said.
•The standard deduction limit for salaried taxpayers would be raised to ₹50,000 from the ₹40,000 announced in last year Budget. “This will provide additional tax benefit of ₹4,700 crore to more than three crore salary earners and pensioners,” the Minister said.
•In another move designed to appeal to the masses, Mr. Goyal said the Tax Deduction at Source (TDS) threshold on interest earned on bank/post office deposits had been proposed to be raised from ₹10,000 to ₹40,000. Further, the TDS threshold for deduction of tax on rent had also been proposed to be increased from ₹1,80,000 to ₹2,40,000.
•The Minister also proposed to exempt the levy of income tax on notional rent on a second self-occupied house. Currently, income tax on notional rent is payable if one has more than one self-occupied house.
•This relief was being provided, considering the difficulty of the middle class having to maintain families at two locations on account of their jobs, children’s education, or the care of parents, he said.
Fixed pension
•In a bid to win over informal workers, the Minister announced the Pradhan Mantri Shram Yogi Maandhan Scheme, designed to ensure a fixed monthly pension of ₹3,000 a month for those above the age of 60. The contribution would be ₹100 a month for those joining the scheme at the age of 29, while it would just ₹55 a month for those joining at the age of 18. The government would match the monthly contributions with an equal contribution of its own.
•Coming just a day after the government revised significantly upwards the GDP growth estimates for 2016-17 and 2017-18, the Minister’s Budget speech spent a considerable amount of time on the state of the economy and how it is a bright spot in the world.
•“The country witnessed its best phase of macro-economic stability during this period,” Mr. Goyal said.
📰 Distributing the rewards of reform
The expansive Budget reflects the fruits of fiscal consolidation, tax reform and streamlined delivery of subsidies
•Since Budget 2019 is the last before the general election this year, it was widely expected to be an assessment of the government’s performance. There was a debate on whether the Budget should have announced any substantive measures since they would bind the next government, post-election.
•It turns out the report card is good enough to create space for some substantial measures. Painstaking fiscal consolidation, tax reform, more efficient delivery of subsidies, and a rise in the share of capital expenditure, have created the space to reward tax-payers as well as announce a relief measure for farmers in distress without substantially compromising fiscal consolidation. It is fair that this government, which imposed the painful reforms and undertook difficult action, should also distribute some rewards of that reform.
Rewards of higher growth
•It may be asked how payment of ₹20,000-₹75,000 crore can be made to farmers and the tax benefits given with only a marginal impact on the fiscal deficit. But a larger size economy can afford to spend larger absolute amounts with only a small rise in deficit ratios and borrowing requirements. The fact that India is the sixth largest and fastest growing economy in the world has some advantages as well as responsibilities to equitably share the rewards of growth.
•Demonetisation, the goods and services tax (GST) and other steps towards formalisation increased the tax base, and it follows that tax rates can themselves be cut. Again it is fair that the aam aadmi, who bore some of the costs of reform, should now benefit from the success of these. It makes good economic sense to move towards a system of a wider base and lower rates. Tax receipts have grown from 10% of GDP — a level at which they had stagnated since the tax cuts after the global financial crisis — to 12%. Although the GST has not yet resulted in a rise in indirect tax ratios above 5.5%, it is likely to do so in the future as it stabilises. The transfers to farmers and tax cuts amount to only 0.4% of GDP this year and are partially funded by a 0.3% rise in tax ratios.
•The JAM (or Jan Dhan-Aadhaar-Mobile) complex is the other major set of reforms that enable a smaller expenditure to have a larger impact on social welfare. Jan Dhan bank accounts opened through the country and the Aadhaar data base make a cost-effective Direct Benefit Transfer (DBT) possible for farmers.
Rewards of lower inflation
•A slight rise in fiscal deficits to fund transfers to farmers does not threaten macroeconomic stability when inflation is low and food prices are crashing. In fact they are likely to help stabilise prices so that farmers do not cut production in the next crop cycle.
•Moreover, this year, the revenue deficit has been maintained, the primary deficit been reduced, and expenditure on capital account been increased. Better quality of government expenditure as well as the GST tax cuts, reductions in obstacles to inter-State trade, and soft commodity prices will keep inflation low.
•The Budget points out that highways are being built at the rate of 27 km per day, which makes India the fastest builder in the world. Railway safety has improved. Better implementation and reduction in waste brings down costs across the board. The shift in the Budget date to earlier in the year and the focus on spending in the first half have resulted in a better achievement of sectoral spending targets this year.
Government borrowing
•The size of government borrowing is larger than what the market anticipated, and this has raised G-Sec rates. The rise in gross borrowing is because of higher redemptions but net borrowing is similar to that last year. There was a sharp rise in G-Sec yields that year. As a result, interest payments as a ratio to GDP rose to 3.2 against the budgeted 3.
•But 3.4% of GDP is not a large fiscal deficit, and market conditions are likely to be more supportive of government borrowing this year. First, the international rate rise has peaked, with the U.S. Fed turning dovish and indicating that there will be no more rise; it is likely to maintain its balance sheet. Emerging market inflows are set to rise, creating demand for G-Secs up to the current cap of 6% of the domestic market. Soft oil prices will encourage foreign investors to return to Indian markets. But since global growth is slowing, inflows are unlikely to be as large as they were in 2017. Therefore, there will be more room for open market operations (OMO) from the Reserve Bank of India that support the debt market. Softening interest rates will also make banks more willing to hold G-Secs.
•When international demand is slowing, it is important to maintain domestic demand. Therefore, tax cuts, more income to farmers and various schemes to improve demand for housing, which has been under stress, are all appropriate.
•While the budgetary contribution to capital expenditure remains at about 1.6% of GDP there is a rise in internal and extra-budgetary resources, which are now larger than gross budgetary support. But public enterprises must be able to raise and use internal resources. This is a healthy sign of efficiency, market viability and reduced dependency on the government. Even market borrowing by such enterprises used for investment when private investment remains low, is likely to crowd in (rather than crowd out) private investment. It will raise demand which will induce more private investment. The latter remains still constrained by low demand at present, except for a few sectors where capacity constraints are appearing.
Improving efficiencies
•Coming back to the issue of binding the next government, post the election, it is necessary that sharing of growth benefits is done in ways that sustain growth, reduce distortions, and improve capabilities to participate in growth.
•Well-targeted transfers can be made without destroying fiscal consolidation and creating macroeconomic vulnerabilities. As competitive populism creates talk of unfunded universal income schemes, or farm loan waivers that hurt growth of farm credit, it is better to bind the next government to schemes that are less distorting.
•The Budget continues the effort to reduce transaction costs and improve compliance incentives. Stamp duty amendments that seek to tax just one transaction, which will be shared across State governments, on the basis of the domicile of the buying client, will reduce a major market irritant, increase transactions and take the country further toward becoming one effective market.
•As income tax returns rise, a less than 0.05% will be selected for scrutiny in non-discretionary, machine-based ways without any interface between the tax-payer and the examining officers, thus reducing potential tax-payer harassment.
•India is a very difficult country to change. Problems remain, but the rewards are beginning to appear and should be greeted with cheers.
📰 The return of targeted cash transfers
Schemes promising cash to the poor absolve the state of its responsibility to provide basic services like health
•With the announcement of a minimum income guarantee (MIG) scheme by the Congress president, the agenda of universal basic income (UBI) has moved from an academic discussion to the political arena. As of now the proposal of MIG is only an electoral promise with no further details available. On Friday, the general budget announced a scheme, Pradhan Mantri Kisan Samman Nidhi, under which vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support of ₹6,000 a year. The appeal of some form of income transfer is now seriously being discussed by all political formations. The idea is not new and has been in discussion for some time among academics in India but attracted attention after it was proposed in the Economic Survey of 2017.
Who will benefit?
•In simple terms the proposal of transferring some income to every citizen is built on the twin principles of universality and a notion of minimum basic income to those living at the poverty line. The principle of universality is at the core of it given the problems of targeting. But some form of income support to those who are unable to participate in labour market has been there in most countries in some form or other including in India, like the National Social Assistance Programme (NSAP) pensions for widows, elderly and disabled.
•Although the idea of UBI has been in discussion for decades, no country has implemented it. While a proposal for UBI was rejected by a three-fourth majority in Switzerland, Finland which started a pilot has now discontinued it. But even in Finland, the pilot was not a strict UBI but a social protection scheme aimed at only the unemployed. While there have been some pilots by NGOs in developing countries in Asia and Africa, they have varied in content of transfer and coverage with only few being fully universal and only the Namibia pilot experiment provided income transfer to people in the poverty line.
•The proposals in the Indian context have mostly been for a targeted income transfer scheme and not UBI. In developed countries, the UBI is supposed to supplement existing social security provisions and a top-up over and above universal provision of health, education and so on. In the Indian context, most arguments in favour of UBI are premised on the inefficiencies of existing social security interventions and seek to replace some of these with direct cash transfers.
Not leakage proof
•It is not just the fascination for targeting the poor which is at the core of these proposals but also a belief that all existing forms of social security transfers are inefficient. While there is certainly some exaggeration in such claims, it is not true that the system of cash transfers is efficient and therefore leakage proof. Several studies on cash transfers including one by J-PAL South Asia for NITI Aayog found that cash transfers are not greatly superior in terms of leakages compared to other schemes of in-kind transfer such as the public distribution system (PDS). On the other hand, numerous studies have documented that a move towards universalisation and use of technology enabled Chhattisgarh and Tamil Nadu to reduce leakages in the PDS. But the real message from these experiments is also that universalisation is the key to efficient delivery of services against targeting proposed by these cash transfer schemes.
•The obsession with cash transfers also comes with an understanding that these will take care of all problems. The current sets of proposals claim these as silver bullets for agrarian crisis to malnutrition to educational deficit and also a solution for the job crisis. This is a tall order with different reasons for persistence for some of these. A good example is the public distribution system (PDS) where it is clearly established that in-kind transfers are twice as effective in increasing calorie intake compared to equivalent cash transfer.
•The real issue with the approach of a targeted cash transfer scheme is that it envisions the role of the state to only providing cash income to the poor. This kind of ‘Robin Hood’ approach seeks to absolve the state of its responsibility in providing basic services such as health, education, nutrition and livelihood. But it is also iniquitous since it seeks to create demand for services without supplying the services, leaving the poor to depend on private service providers. There is now sufficient evidence which shows that privatisation of basic services such as health and education leads to large scale exclusion of the poor and marginalised. In any case, India is among the countries with lowest expenditure to GDP ratio as far as expenditure on health, education and so on are concerned.
Jobs, best antidote
•The best antidote to poverty is enabling citizens to earn their living by providing jobs. For those who are willing to work, schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme should be strengthened to enable then to earn decent incomes. Similarly, the crisis in agriculture is unlikely to be resolved by income transfers. But even with free and universal access to public services and access to livelihood opportunities, there may be a role for cash transfers, particularly for those who are unable to access the labour market or are marginalised due to other reasons. The NSAP seeks to do exactly that by providing pensions to elderly, widows and disabled. But even for these vulnerable and marginalised groups, the Central contribution to pensions has been only ₹200 per month. If governments cannot ensure decent incomes to the poor, then the issue is not of details of minimum income transfers but that of intent of those who are promising to eradicate poverty through income transfers. On this, there is no ambiguity.
📰 Interim Budget 2019 | Farm pension: just a drizzle in drought?
Agricultural economists say ₹6,000 a year for smallholders, announced with an eye on polls, will not help alleviate distress
•In a bid to woo the farming community before the Lok Sabha election, the Centre has announced an annual income support of ₹6,000 to small landowning farmers, with an initial sum of ₹2,000 to be paid by the end of March.
•The new scheme, called the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), will benefit more than 12 crore farming families which own cultivable land up to 2 hectares. The annual support of ₹6,000 will be paid directly into beneficiary bank accounts over the course of the year in three instalments of ₹2,000 each.
•The scheme is applicable with retrospective effect from December 2018 and will be fully funded by the Union government. It has been allocated ₹20,000 crore in the revised estimates for the current financial year 2018-19, as well as ₹75,000 crore for the next financial year 2019-20.
•Announcing the scheme, Finance Minister Piyush Goyal acknowledged that farmers’ incomes are falling due to a decline in international prices and domestic food inflation, and fragmented landholdings.
•“There is a need for providing structured income support to the poor landholder farmer families in the country for procuring inputs such as seeds, fertilizers, equipment, labour, etc., and to meet other needs,” Mr. Goyal said. “Such support will help them in avoiding indebtedness as well and falling into the clutches of money lenders.”
•Other measures announced in the Budget include a 2-5% interest subvention for loans taken by farmers hit by natural disasters or for livestock farming and fisheries.
•Agricultural distress and anger over debts leading to farmer suicides were widely perceived to be the reason for the BJP’s defeat in three major State elections in November, and the ruling party has been considering sops for the farming community ever since.
•However, several agricultural economists and farm activists said the scheme had been announced with an eye on the polls and will not be enough to alleviate distress.
•“This is too little, too late,” said Ashok Gulati, agricultural economist at ICRIER. “At ₹500 per month, it will amount to less than one-fifth of an average household’s income. Per annum, it’s peanuts.” He suggested that if the government really wanted to make a difference through an income support scheme, it should double the amount given by reducing some food and fertilizer subsidies.
•“It has been done half-heartedly,” said agriculture and food policy expert Devinder Sharma. “I don’t know how you can pull farmers out of distress and prevent farmer suicides with just ₹500 per month.”
•The Central scheme’s payout is lower than what is being given by two States which already implement similar schemes: Telengana’s Rythu Bandhu scheme which gives farmers ₹10,000 an acre a year, and Odisha’s KALIA scheme, which is giving ₹10,000 a household a year to small landholders as well as landless tenant farmers.
•“Every amount of money has value. The assurance of something certain coming to you gives a sense of confidence that there is something to fall back on,” said Agriculture Secretary Sanjay Agarwal, defending the support amount.
•He pointed out that each family unit — of a married couple and their minor children — was eligible for the scheme. A household of five adult brothers jointly owning a 10-hectare piece of land would receive ₹30,000 for the year, he said.
📰 ₹500 crore for pension for unorganised labour
Allocation for existing scheme slashed
•The Centre has allocated ₹500 crore for a new pension scheme for workers in the unorganised sector, even while reducing its allocation for an existing pension scheme by ₹775 crore.
•The new scheme, to be called the Pradhan Mantri Shram-Yogi Maandhan, will benefit unorganised sector workers who have a monthly income up to ₹15,000. It will provide them a monthly pension of ₹3,000 from the age of 60.
•Workers will contribute an amount ranging from ₹55 to ₹100 each month, depending on their age, at the time of joining the scheme, while the government will deposit a matching contribution. The Centre expects 10 crore workers to get the benefit within the next five years.
•“Half of India’s GDP comes from the sweat and toil of 42 crore workers in the unorganised sector…We must provide them comprehensive social security coverage for their old age,” said Finance Minister Piyush Goyal, while announcing the scheme in Parliament.
•However, the Budget documents show that an existing pension scheme, which already benefits more than 3 crore poor people who are senior citizens, disabled or widows, has had its allocation slashed. The National Social Assistance Programme (NSAP), a pension scheme administered by the Ministry of Rural Development, had originally been allocated ₹9,975 crore in the 2018-19 Budget. For 2019-20, the scheme’s allocation has been cut to ₹9,200 crore, a drop of ₹775 crore.
•The NSAP featured in last year’s Budget speech, when then Finance Minister Arun Jaitley had said the government was “implementing a comprehensive social security and protection programme to reach every household of old, widows, orphaned children, divyaang and deprived as per the Socio Economic Caste Census (SECC).”
•Using the SECC criteria as opposed to the existing Below Poverty Line criteria would have doubled the pension coverage to more than 6 crore people. However, Mr. Jaitley’s Budget allocation remained unchanged. This year, Mr. Goyal made no mention of the NSAP, but reduced next year’s allocation from the current year’s Budget estimates.
•In fact, the specific allocation for disabled and widows is even lower than the revised estimates for the current year.
•Pension rights activists and workers representatives are sceptical about the newly announced scheme.
•“Contributory pensions are meaningless for the unorganised sector. Many workers barely earn a survival amount and cannot afford a monthly pension contribution. They already contribute through lifelong labour and indirect taxes,” said Nikhil Dey, convenor of the Pension Parishad, a movement demanding a universal, non-contributory pension of ₹3,000 per month. “For a salaried worker, a pension contribution can simply be cut from his salary. But expecting a daily wager or migrant worker to deposit a regular contribution is a pipe dream.”
•Subhash Bhatnagar, coordinator of the National Campaign Committee for Central Legislation on Construction Labour, says the experience of social security for construction workers shows the impracticality of the scheme. “The construction worker welfare boards have failed dismally in their attempt to register workers for a very nominal annual amount,” he said, noting that pension and other benefits for such workers came from a cess on construction activity, not workers’ contributions. “It is impossible to implement this.”
•There are a number of unanswered questions regarding the scheme. “How will you track a migrant worker for his pension contribution? If someone switches from the informal to formal sector over the course of his working life, will he still be eligible?” asked Rajendran Narayan, a researcher at the Centre for Sustainable Employment at the Azim Premji University.
📰 Interim Budget 2019: Goyal unveils Vision 2030, highlighting 10 dimensions
Govt. will create an India where poverty, malnutrition, littering and illiteracy would be a matter of the past
•Presenting the Interim Budget, Finance Minister Piyush Goyal on Friday laid out the government’s vision for India in 2030, highlighting “10 most important dimensions.”
•“Our India of 2030 will have a proactive and responsible bureaucracy which will be viewed as friendly to people. With ten-dimensional vision, we will create an India where poverty, malnutrition, littering and illiteracy would be a matter of the past. India would be a modern, technology-driven, high growth, equitable and transparent society,” Mr. Goyal asserted.
•Stating that India aspires to become a $10-trillion economy in the next eight years, he said the first dimension or point of this vision is to build physical as well as social infrastructure for a $10-trillion economy and facilitate ease of living.
•This will comprise of next generation infrastructure of roads, railways, seaports, airports, urban transport, gas and electric transmission and inland waterways.
•“On the social infrastructure side, every family will have a roof on its head and will live in a healthy, clean and wholesome environment.”
Digital India
•While the second dimension of “our vision” is to create a Digital India, making India a pollution-free nation is the third point which will be driven by electric vehicles and renewables becoming a major source of energy supply.
•“Expanding rural industrialisation using modern digital technologies to generate massive employment is the fourth dimension of our vision,” he said. This will be built upon this government’s flagship ‘Make in India’ programmeto develop grass-roots level clusters, structures and mechanisms, encompassing the MSMEs, village industries and start-ups.
•Under the fifth dimension, Mr. Goyal talked about clean rivers and safe drinking water for all Indians, along with efficient use of water in irrigation using micro-irrigation techniques.
•“India’s long coastline has the potential of becoming the strength of the economy, particularly through exploitation of the Blue Economy…coastline and our ocean waters powering India’s development and growth is the sixth dimension of our vision,” the Minister said.
•“The seventh dimension of our vision aims at the outer skies… making India self-sufficient in food, exporting to the world to meet their food needs and producing food in the most organic way is the eighth dimension of our vision,” he said.
•Next comes the vision of a healthy India. “By 2030, we will work towards a distress-free healthcare and a functional and comprehensive wellness system for all.”
•“Our vision can be delivered by Team India — our employees working together with the elected government, transforming India into a minimum government, maximum governance nation. This is the tenth dimension,” the Minister said.
📰 Interim Budget 2019: Centre’s fiscal deficit target goes for a toss
Interim Budget places it at 3.4% for 2019-20 on higher allocations towards income support scheme for farmers.
•Finance Minister Piyush Goyal said that the government would be missing its fiscal deficit target for 2018-19 and 2019-20, a fact that economists flagged as a matter of concern.
•“The estimate of incomes and expenditure, which I am presenting today, pegs the fiscal deficit of year 2019-20 at 3.4% of GDP,” Mr. Goyal said in his Interim Budget speech. “We would have maintained fiscal deficit at 3.3% for year 2018-19 and taken further steps to consolidate fiscal deficit in year 2019-20. However, considering the need for income support to farmers, we have provided ₹20,000 crore in 2018-19 RE and ₹75,000 crore in 2019-20 BE,” he said. As per revised estimates for 2018-19 the fiscal deficit is 3.4% The government had set a fiscal deficit target of 3.3% for 2018-19 and 3.1% for 2019-20.
•Mr. Goyal said if the farmers’ scheme allocation was to be excluded, the fiscal deficit would have been “less than 3.3% for 2018-19 and less than 3.1% for year 2019-20.”
•Terming the Interim Budget as an exercise that ‘prioritised populism over fiscal prudence’, Angel Broking said the fiscal slippage could have an impact on the Reserve Bank of India’s decisions on interest rates.
‘RBI may not cut rates’
•“There are two things playing out for the banking sector from the Union Budget,” Jaikishan Parmar, senior equity research analyst – BFSI, Angel Broking said. “On the one hand, the higher fiscal deficit target set at 3.4% for 2018-19 and at 3.4% for 2019-20 will mean that the RBI may not be too keen to cut rates in the immediate future,” he said. “However, on the positive side, the commitment of the Finance Minister in his budget speech to increase allocation for recapitalisation to beyond ₹2.60 trillion, if required, will go down well with the banks,” he added. The government’s total budgeted expenditure rose from ₹24,57,235 crore in 2018-19 (RE) to ₹27,84,200 crore in 2019-20, a rise of ₹3,26,965 crore or approximately 13.30%. Capital expenditure for 2019-20 (BE) is estimated at ₹3,36,292 crore, 6.21% higher than the revised estimates of the previous year.
•“It is on the low side because relative to GDP it has fallen compared to last year. Now, it’s about just 1.6% of GDP. When the government is planning a lot of infrastructure expansion but the capital expenditure is actually falling, it can either be financed through extra budgetary resources or the numbers will have to be revised,” he said. Economists also expressed concern over the disinvestment target being retained at ₹80,000 crore for 2018-19 and increased to ₹90,000 crore for 2019-20. So far, the government had raised about ₹36,000 crore.
•“The disinvestment target is still being maintained while it looks increasingly difficult to achieve,” Ranen Banerjee, partner and leader, public finance and economics, PwC India, said.
•“The actual deficit numbers will depend on the realised GST collections over the next two months and the government’s ability to meet disinvestment target over a time line of one month left for action before election code kicks in.”
