Key Numbers To Watch Out For In Budget 2019

The Narendra Modi government will present its last budget—a vote on account—tomorrow, highlighting at least its income and expense plan until a new government is formed, or at most some steps to relieve India’s farm distress.

Here are the key numbers to watch out for:

• Total receipts.
• Capital expenditure.
• Fiscal deficit.
• Gross borrowing.
• Divestment target.

Total Receipts

The government's revenue, or what it earns over a financial year through direct and indirect taxes along with other investments, is expected to fall short of estimates for financial year 2018-19.

Total revenue receipts for FY19 will come around Rs 16.66 lakh crore against the budget estimates of Rs 17.26 lakh crore, State Bank of India said in a report ahead of the budget. This is largely because tax collections from the two-year old goods and services tax system have been lower than expected, according to reports by Axis Bank and Kotak Economic Research.

"In FY19 the largest downside to revenues has been from the GST collections with the shortfall likely at around Rs 1.4 lakh crore," Kotak's report said. It expects total receipts to come in at Rs 17.61 lakh crore this fiscal and at Rs 19.73 next fiscal.

Axis Bank's economists expects Rs 17.31 lakh crore revenue for this financial year and Rs 19.65 lakh crore for financial year 2019-2020.

Capital Expenditure

Total expenditure—which includes revenue and capital expenditure by the government—is expected to be lower than last year’s estimates.

“We expect a cut in capital expenditure by Rs 50,000 crore and postponing Rs 30,000 crore of revenue expenditure to the next year,” SBI said, adding that total expenses are likely to come in at Rs 26.6 lakh crore for the current financial year. Axis expects a Rs 45,000 crore cut in total expenditure, mostly through capital expenditure.

The cut in expenses will help the government stick closer to its fiscal deficit target of 3.3 percent, Axis Bank said. It expects government spending to be at Rs 23.96 lakh crore and capital expenditure to stand at Rs 2.7 lakh crore.

Fiscal Deficit

India’s fiscal deficit—the difference between all its earnings and expenditure—is going to be one of the key numbers to watch out for.

While SBI and HSBC expect the country to meet its fiscal deficit target of 3.3 percent of the gross domestic product, Axis Bank and Kotak say that the metric is likely to slip by 20 basis points to 3.5 percent.

Expenditure plans such as “farm loan waivers, direct cash transfers to farmers, and additional bank recapitalisation bonds have been scaled up further over 2018,” HSBC’s report pointed out, when the government should be working towards consolidating its fiscal deficit to meet the requirements laid out by the Fiscal Responsibility and Budget Management Act.

The FRBM Act required the government to squeeze the fiscal deficit down to 3 percent of the GDP by financial year 2017-18. Having missed that target already, the government laid out a 3.3 percent goal for itself at the beginning of the this financial year.

Missing the 3.3 percent target would have an adverse effect on India’s credibility, just a little over a year after Moody’s Investors Service upgraded India’s sovereign rating for the first time since 2004.

Further, “this raises questions for FY20 when the central government will be grappling with an elevated repayment bill and the central bank may not necessarily do as many OMO (open market operations) bond purchases,” the HSBC report said.

Gross Borrowing

Economists expect gross borrowings to stand between Rs 6.25 lakh crore and 6.5 lakh crore for the next fiscal, compared with an estimated Rs 5.35 lakh-crore borrowing number for this fiscal.

“We are expecting minimum buybacks in FY20 as the government might be carrying forward a minimal cash balance into FY20,” the SBI report said.

HSBC said that the higher gross borrowing, unless reduced through debt switches, will continue to exert upward pressure on yields as “the average weekly borrowing would be around Rs 14,000 crore compared to Rs 12,000 crore in FY19”.

“We estimate borrowings through T-bills at around Rs 18,000 in FY20,” it said.

Divestment Target

The government is expected to miss its ambitious divestment target for financial year 2018-19 by Rs 20,000 crore. The divestment or disinvestment target is achieved through selling the government’s stake in multiple companies.

So far, the government has garnered Rs 33,800 crore as of Dec. 1 2018 by selling stakes in Rural Electrification Corporation Ltd., Bharat Heavy Electricals Ltd. and NHPC Ltd.

HDFC, however, expects that the government will meet its divestment target of Rs 80,000 crore after the expected SUUTI (Specified Undertaking of the Unit Trust of India) sales.

The centre’s divestment target is likely to remain unchanged at Rs 80,000 crore, the reports agreed.