From doling out sops for the farm sector and providing some relief to the individual income-tax payers, here's what leading brokerages expect from the budget.
With
barely a few days left for the NDA (National Democratic Alliance)
government to present the Interim
Budget 2019, most domestic and foreign brokerages expect the
measures to have a populist undertone ahead of the general elections
scheduled for April / May 2019.
From
doling out sops for the farm sector and providing some relief to the
individual income-tax payers, here’s what leading brokerages
expect.
CLSA
The
pressure to further expand the farmer welfare programme ahead of the
2019 national elections is high for PM Modi. A possible announcement
of a nationwide direct farmer support scheme is quite likely, or
possibly even earlier. A Telangana-style scheme could cost ~
Rs1.2trn, further complicating fiscal maths, as it could be a
recurring liability. The RBI’s possible large dividend might help
just one time.
The
GST-led tax revenue shortfall of 75-80bps of GDP is not reflected in
the reduced government expenditure for FY19 due to off-balance-sheet
funding, which is not a sustainable solution and will create its own
problems later and distort the reported fiscal deficit for FY19.
We
expect the ‘real’ government expenditure growth to slow down. The
impact on capex will be even greater if the farmer support scheme is
implemented. ITC should see some relief rally, as the budget is
unlikely to tinker with tobacco taxation.
Bank
of America Merrill Lynch
We
expect the Center to target a fiscal
deficit of 3.5% of GDP in FY20, after ending FY19 at 3.7%, 40bp
higher than target. This should be funded by running down the
Center's surplus with the RBI without additional issuance. While a
pre-election Budget should ideally not propose new direct taxes, the
finance minister should take steps to alleviate stress in rural India
(metaphorically Bharat) via subvention or direct income transfer and
for small industries via subvention.
Nomura
The
interim budget would provide an opportunity for the government to
outline its medium-term economic priorities, specifically with
regards to improving farm/rural incomes. We pencil in GFD/GDP of 3.2%
in FY2020E after 3.5% for FY2019E. Outside of the farm sector, we
expect a focus on micro, small and medium enterprises (MSMEs) and the
middle class. We do not expect any big tax changes in the interim
budget (if any, they will be announced in the final budget to be
presented in June/July).
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