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MOSL: UNION BUDGET 2018 -19-Shades of populism ahead of election year- Yet, no evidence of profligacy

Union Budget 2018 -19: Shades of populism ahead of election year; Yet, no evidence of profligacy

 

• It was a relief to note that the government did not succumb to demands for free cash incentives, farm loan waivers or universal basic income. Further, it remains to be seen if the announcement to keep minimum support price (MSP) for all unannounced kharif crops at least at 1.5x of their production cost will lead to a significant growth in MSPs and/or thus higher inflation in 2018-19.
• Moreover, the headline fiscal deficit target of 3.3% of GDP for FY19 is broadly in line with the consensus, while market borrowing targets are better-than-consensus. Details, however, are not as favorable.
• There are at least three reasons why 2018-19 Union Budget numbers could see significant revisions. Firstly, an expected growth of 19.1% in indirect taxes implies a sharp jump in buoyancy (from 1.14 in FY18 to 1.66 in FY19) and ~27% growth in monthly run-rate of GST collections. Both appear ambitious. Not surprisingly then, gross taxes are budgeted to cross 12% of GDP for the first time ever. Secondly, fuel subsidy is unchanged at INR250b, which poses a risk of INR250b-300b slippage. And thirdly, there are no allocations for the flagship National Health Protection Scheme, which could cost as much as INR500b.
• Further, sharp revisions in almost all budget items for FY18 raise doubts over the sanctity of FY19BE numbers. It is also notable that capital spending is budgeted to fall to 1.6% of GDP in FY19BE – the lowest in the past half a century versus 1.8% in FY17.