BJP's spending analysis: Not populist in the election year

While central government's fiscal deficit slippage in FY18 - FY19 is widely viewed as negative and led to a sharp rise in bond yields, I don't see it as a major negative

How does one judge the performance of the government amid the clamour of paid reports, favoured opinions, generation bias, media management, and political fights? An unbiased approach, free from even personal opinions, is important. I choose data analysis precisely for this reason – data does not lie, and data is impartial. I have examined the government’s spending, both centre and state, on various sectors for the last five years in order to gauge its performance.

Data revealed that along with states, the central government has successfully attempted to bring about a structural change in the economy by focusing on full-fledged development. In FY14, it focused on rural jobs (MNREGA), followed by roads and metros in FY15, agriculture, irrigation, and rural development in FY16-17, housing in FY18, and health in FY19. Basically, it added a new focus sector every year, but continued to concentrate on the earlier core sectors. As of FY19, we have a strong foundation laid out across sectors, which can work as growth engines. The BJP government has done a good job in terms of sector focus; however, for policy continuity, which will be an important factor for economic growth from here, it needs to be reelected in FY20.    

While central government’s fiscal deficit slippage in  FY18-FY19 is widely viewed as negative and led to a sharp rise in bond yields, I do not see this as a major negative, as less-favoured sectors received higher allocation (such as police, commerce, post, sanitation, drinking water, health). For FY19, central government spending is higher towards food subsidy (higher MSPs), agriculture, railways, roads, CVC along with other sectors. Capex growth for the centre in FY19 is at 10% on last year’s subdued base. Sectors that have received greater capex funds are roads, railways, education, space, atomic energy and CVC; defense allocations are largely stable.  

States’ aggregate fiscal health in FY18 panned out as budgeted, except for sharp slippage in Bihar. FY18 fiscal deficit stood at 2.9%, FY19 is budgeted to fall to 2.7%. Marginal revenue surplus is budgeted for FY19 vs. the deficit of 0.25% in FY18. Overall states’ fiscal health is sound despite farm-loan waivers by a few states. States spent most of their funds on education, health, rural development, energy, agriculture, and roads – broad-based spending is in line with the central government. Also, there is synchronization in the sector focus between the centre and the states, indicating that the government has worked towards the structural enhancement of the country.   

In the last four years, both centre and states spent a maximum chunk of their money in the form of interest payments (usual trend for any government), followed by quality spend on roads, education, pension (7th Pay Commission impact), agriculture, and defense. With higher allocations after the 14th Finance Commission, states are playing a dominant role in government spending (60% of the sovereign capex is spent by them).       

There is no sign of populism. 2018-19 is an election year, and the general belief was that the government would dole out benefits. However, budget allocations do not indicate this. Instead, overall spending in FY19 is muted, tilting more towards fiscal prudence. Increase in MSPs can be termed as populist by some, but I see this as moving closer to its aim of ‘doubling of farmers’ incomes’, making MSPs relevant, and ensuring procurement (in time) – which should lead to farmers diversifying to non-cereal crops. Railways should spend higher funds under the Piyush Goyal; spending has already increased since his takeover. However, metros did not receive much funds in FY19 vs. the last four years. 

While there are elevated fiscal risks in FY19 from rising oil prices, GST collections, and disinvestment, from the spending angle, it is worth appreciating the focus that the BJP government has shown. It is well-diversified, aimed at structural enhancement, and is bound to help the Indian economy flourish. Some claim that the government enjoyed the benefits of low oil prices for the last four years, but these were also the years when the 7th Pay Commission was implemented, more resources were transferred to the states, and the GST was rolled out. 

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Anjali Verma is the Chief Economist at PhillipCapital. Views expressed are her own