EUR 125.00 For Business Accounts Only

MOSL: ECOSCOPE - Union Budget 2019-20 Preview-Capital spending may decline again in FY19

ECOSCOPE - Union Budget 2019-20 Preview; Capital spending may decline again in FY19

 

• The Union Budget 2019-20 will be presented on 1st February 2019. With the current government's term ending in a few months, it is more likely to be an interim (or vote-on-account, VOA) budget. A full budget will be announced after the formation of the new government following the general elections.
• Although the full budget later this year will hold more significance (as the numbers may change with the new government), the forthcoming interim budget may well offer a glimpse of what lies ahead as market participants seek answers to some crucial questions: Will the government increase rural spending and turn populist? Will such populist spending be an annual occurrence or a one-time event? Will the salaried class enjoy any relaxation or will the large companies see lower corporate tax rates at 25%? What would happen to the capital spending of the central government? Will politics of the day allow the center to follow the path of fiscal consolidation?
• Expectations run high from all participants in the economy, but the government is unlikely to (even if it is willing to) fulfill all of these, in our view. Given the current political milieu, we believe that some incentives to the rural sector are likely, indicating that the government's capital spending could decline again in FY19. We expect the fiscal deficit to be 3.5% of the GDP for the third consecutive year in FY19; however, the government may show high growth for FY20 in its budget with another deficit target of 3.3%.