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MOSL: BUDGET PREVIEW 2018-19-Union Budget Expectations—What’s in whose kitty? Question is rife whether the budget will be populist

Budget PREVIEW 2018-19: Union Budget Expectations—What’s in whose kitty? Question is rife whether the budget will be populist

India's Union Budget 2018-19 will be presented on 1st February 2018. Expectations and excitement run high as it will be the first post-GST and last full-year budget before the General Elections in 2019.

• We note that the 2018-19 Budget will be presented against the backdrop of uncertainty over tax collections post implementation of the Goods & Services Tax (GST). We expect the government to revise its deficit target to 3.4% of GDP for FY18 (higher than the budgeted estimate of 3.2%) and to 3.2% of GDP for FY19 (higher than the target of 3% set last year). It means that the plan to meet the 3% deficit target will be postponed by one year (to 2019-20) for the third time.
• As the current government will present its last full-year budget before the 2019 General Elections, many in the market expect a heavier dose of populism. However, we believe that the government has limited financial resources to propose any targeted scheme for the poor. We also do not expect much relief on the tax front, except some reduction in the corporate tax rate for medium-sized companies.
• From an equity market perspective, it is important to see how the Budget is able to make a difference to the rural sector, how the government is able to carry the burden of expectations, and whether the Budget strikes a right balance between good economics and good politics, especially with the General Elections around the corner next year.