Centre to deliver a popular, but not a populist Budget 2017: Nomura

Govt may set an ambitious fiscal deficit target of 3% of GDP, says the report by Nomura

In the upcoming Union Budget, the Centre may set an ambitious fiscal deficit target of 3% of the gross domestic product (GDP) in 2017-18, according to a report by Nomura.

“We expect the government to stay on the path of fiscal consolidation, targeting its fiscal deficit at 3% of GDP in FY18, in line with the roadmap set last year and against 3.5% in FY17. If we are correct, this would be a positive surprise to the Bloomberg consensus which expects a deficit of 3.3% of GDP,” Nomura said in its report on Tuesday.

While Goldman Sachs said in its research report that the government will set a fiscal deficit target of 3.3% of GDP, a State Bank of India internal research had pegged it at 3.4% of GDP, according to Press Trust of India.

Here is a list of what could be expected from the upcoming Budget this year:

Govt to cash in from four major revenue sources: According to the report, the government will gain Rs 65,000 cr, accounting 0.4% of the GDP, from asset sales and disinvestment ventures.

Another Rs 30,000 cr would accrue from a special dividend from the Reserve Bank of India due to its extinguished liability out of the demonetisation drive Reducing reserve prices in spectrum bid in FY18 for higher revenue collections.

Earnings can also accrue from the spectrum sale after the reduction of reserve prices.

According to the report, there will be higher tax collection due to increased compliance post-demonetisation.

Lowering of Corporate tax: The report stated that it expected an across-the-board lowering of corporate tax by 2 percentage points to 28% and phasing out of tax exemptions.

Rise in net borrowings: With redemptions of Rs 2.3 lakh cr, gross borrowings are likely to rise to Rs 6.4 lakh cr in FY18 from Rs 5.8 lakh cr in the previous financial year.

Digital transactions: The government is likely to incentivise digital transactions through a slew of measures including income tax incentives for digital transactions, a lower threshold for quoting the permanent account number for cash transactions, and cash handling charges for cash payments above a certain threshold.

Affordable housing, employment, agriculture to receive a push: The outlay for schemes like the Pradhan Mantri Gramin Awas Yojana and the Mahatma Gandhi National Rural Employment Guarantee Scheme will be increased. Similarly, the report states that the government is also likely to increase investments in irrigation systems, horticulture, livestock farming, and fisheries, among others. 

Fiscal consolidation: The report added that the government will stick to fiscal prudence as demonetisation of old currency notes “will only have a transitory effect, due to the potential for higher fiscal gains and an already high general government deficit.” It added that the current fiscal year’s fiscal deficit target of 3.5 per cent will also be met.

Nomura added that demonetisation will lead to higher fiscal gains next year due to higher tax compliance, gains from the amnesty scheme and the special RBI dividend.

“Overall, we expect the government to stick to its fiscal consolidation roadmap, aided by higher tax compliance and asset sales. We expect a rationalisation and simplification of direct taxes and the budget to focus on the themes of a ‘less-cash’ economy, rural India, affordable housing and infrastructure,” it said.

Nomura felt that the government will deliver a “popular, but not a populist, budget” on February 1.