Interim Budget focused on rural and agri sector, notes DBS bank

India's interim budget for the financial year 2019-20 has a strong focus on the rural and agricultural sector and also suggests that economic priorities have taken precedence, according to a leading bank here.

Presenting the interim budget for FY 2019-20 ahead of the general elections due in April-May this year, Finance Minister Piyush Goyal on Friday proposed an array of incentives for both middle-class and farmers.

Singapore's DBS Bank has said that there was a marginal slippage in the FY19 and FY20 fiscal deficit targets, resulting in a sharp increase in the borrowing quantum.

Friday's budget announcements suggest that the economic priorities have taken precedence over near-term fiscal consolidation as the 3 per cent of Gross Domestic Product (GDP) fiscal target stands delayed, Radhika Rao, economist at DBS' Group Research, wrote in a commentary on the Indian budget.

She said that the consumption-push and growth stimulus will be positive for growth, but limits scope for an aggressive monetary easing cycle.

"We also note that this Interim Budget holds till July 2019, when a full-year budget is likely to be tabled, after the general elections," she said.

The outgoing year and FY20 marked a modest fiscal slippage. The government revised up the FY19 fiscal deficit at -3.4 per cent of the GDP vs -3.3 per cent in the budgeted estimate.

"This was broadly in line with our expectations where -3.5 per cent was seen a red line for any deterioration in the math. The slippage is more notable for FY20, to -3.4 per cent vs -3.1 per cent laid out in the roadmap, built on a 11.5 per cent nominal GDP growth projection, said Rao.

The breakdown reveals that the government has built in aggressive revenue assumptions in FY20, despite factoring in a slowdown in nominal growth to 11.5 per cent vs revised 11.8 per cent in FY19.

Recent reduction in GST rates, higher thresholds and wider umbrella of tax payers under the composition scheme are also likely to slow collections further in FY20, Rao pointed out.

"Income tax revenues are also projected to improve, factoring in a wider tax base and improved compliance. Under other revenue heads, excise duty collections are expected to moderate as oil prices ease and past tax cuts bite," she said.

Dividends and profit transfers from the Reserve Bank of India and other public sector entities, is projected to increase marginally from Rs1.2 trn to Rs1.4 trn.

With lack of fresh revenue generating measures in the interim budget, much of the funding is likely to arise from higher markets-based borrowings, she said.

Higher revenue projections are meant to plug an increase in spending requirements, as the government adopted a pro-consumption focus in the Interim Budget, said Rao.