Budget 2019: After election, it's Modi's key chance to spur waning economy

Growth slowed to a five-year low of 5.8% in the first three months of 2019 -- well below China's 6.4% expansion -- putting pressure on Modi to deliver on a stimulus plan to kickstart consumption.

Budget 2019 : Prime Minister Narendra Modi has his first chance since a decisive election win to spur an economy that’s quickly lost its status as the world’s fastest-growing major one.

Newly appointed Finance Minister Nirmala Sitharaman is expected to boost spending and provide tax relief to consumers in her maiden budget on Friday. That will probably widen the budget gap to 3.5% of gross domestic product in the year started April 1 from 3.4% targeted in February’s interim spending plan, according to a Bloomberg News survey.

Growth slowed to a five-year low of 5.8% in the first three months of 2019 -- well below China’s 6.4% expansion -- putting pressure on Narendra Modi to deliver on a stimulus plan to kickstart consumption, a bedrock of the economy. With the global outlook turning gloomy amid heightened trade tensions, and the Reserve Bank of India already cutting interest rates three times this year, the focus is shifting to the government to play its part.

“For the next budget exercise, the development goal might supersede the rigid objective of fiscal austerity,” said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India in Mumbai. “Sticking to a particular fiscal number is not that important in the current scenario.”

Sitharaman will need to balance allowing the budget deficit to widen without risking a credit-rating downgrade and rattling bond markets. Key to that will be finding additional revenue to finance higher spending and keeping borrowing under control.

Here are other key things to watch for in the budget:

Taxes

Revenue from consumption taxes and customs levies undershot targets last year, and Sitharaman will need to find additional resources to fund welfare programs without increasing the tax burden on individuals. She’s expected to give consumers relief by increasing the personal income tax threshold for some individuals in the budget, according to people familiar with the matter.

Analysts at Kotak Mahindra Bank led by Suvodeep Rakshit estimate that tax revenue will probably be 1.4 trillion rupees ($20 billion) lower than was forecast in the interim budget. “This will be the most significant threat to the fiscal math,” the analysts said in a note.

Business Standard