How to read Union Budget 2019-20: No major expenditure, no populism

Instead, she chose to focus on making it easier for business to invest. Together, this approach allowed her to address the macroeconomic concerns on one hand while attempting to boost investor sentiment on the other.

Surprise on Fiscal Deficit

The first biggest concern in this Budget was about the fiscal deficit, which reflects the government’s borrowing for the year. A high fiscal deficit essentially crowds out the private sector from using financial resources.

Surprisingly, the FM improved the fiscal deficit target to 3.3 per cent of the GDP from the 3.4 per cent announced in the interim Budget in February this year. Alongside, the FM also announced a long-debated idea — that of the government raising a part of its gross borrowing programme in external markets in external currencies.

This move has its risks as it raises the exposure of the Indian economy to the disturbances and glitches in the global economy. Yet, for the time being, it is likely to have, as the FM said, a “beneficial impact on demand situation for the government securities in domestic market”.

Predictably, the Indian government’s 10-year bond yield fell. Essentially, these decisions imply that the pressure on domestic resources to fund government’s borrowing will fall and possibly provide a boost to private sector investment.

Confusion about economic growth

India’s economic growth has lost momentum right through the last financial year. Real GDP growth fell from 7.2 per cent in 2017-18 to 6.8 per cent in 2018-19. For the current year, the Budget at a Glance document gives a nominal GDP growth rate of 12 per cent. Assuming 3.5-4 per cent inflation for the current year, this would imply a real GDP growth of 8-8.5 per cent for 2019-20. If this was indeed the case, one would have expected the FM to lead with it, especially since growing at 8 per cent each year is what India needs to achieve the $5 trillion economy goal by 2025.

What further complicates the understanding is the fact that the Macroeconomic Framework Statement, also supplied with the Budget documents, clearly states that the nominal GDP for the current year will be 11 per cent, thus bringing down the real GDP rate to 7-7.5 per cent range. The interim Budget had assumed a nominal GDP growth of 11.5 per cent.

Also Read: Here’s how India Inc reacted to Budget 2019

Revenue concerns sustain

A key understanding from the interim Budget as well as the data from Controller General of Account office has been the stress on tax revenues. For the current year, perhaps as a realisation of the lower nominal GDP growth rate, the tax revenues are budgeted at Rs 16.49 lakh crore. However, this number is significantly lower than the budgeted number for the current year in the interim Budget, which was Rs 17.05 lakh crore. Overall, concerns over GST collections sustain as the budgeted figures for the current year are lower than the budgeted figures in the last financial year’s budget.

Welfarism put on pause

The FM minister did well in not giving in to any populist urges by ramping up budget allocations especially to the recently announced flagship schemes such as PM-KISAN, PM-AASHA or Ayushman Bharat. Instead, the FM chose to focus more on reviving investments in infrastructure, both rural and urban.

Recapitalisation over reform?

The one big expenditure announced in the FM’s Budget speech was the Rs 70,000 crore to be allocated to public sector bank recapitalisation. One way to look at it is that this money will help these banks to lend further and boost economic activity. However, the critics would point out that in the absence of real governance reforms in these banks, this is akin to throwing away taxpayers money.

RBI dividends

Another big concern was the level of dividends from the RBI that the government will receive this year. The broader rubric of dividends from RBI and public sector banks sees a doubling of receipts from Rs 54,817 crore (2018-19 BE) to Rs 1.06 lakh crore.

A word cloud of Finance Minister Nirmala Sitharaman’s maiden budget in Lok Sabha Friday.

Disinvestment boost

Another good news in the budget from the fiscal health perspective is the increased target for disinvestment in the current year — it now stands at Rs 1.05 lakh crore.

So all in all, while this Budget may not have enthused the middle-class straightaway — especially given the hike in fuel taxes — the Finance Minister has astutely avoided getting dragged into populist measures. For the time being, no news is good news for the Indian economy.