With Rs 20-trn package, fiscal deficit to balloon to 7.9% in FY21: Report

“We estimate a 4.5% direct impact on fiscal deficit purely because of revenue shortfall / automatic fiscal stabilizer and a 0.9% indirect effect because of GDP change,” the SBI report says

With the government’s Rs 20 trillion stimulus package, the country’s fiscal deficit is likely to be more than double to 7.9 per cent in the current financial year, according to an SBI research report. The report had earlier estimated the fiscal deficit to be 3.5 per cent of GDP this fiscal. The government has announced a cumulative package of Rs 20 trillion, which is nearly 10 per cent of GDP to provide relief to various segments of the coronavirus-hit economy.

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“After taking into account cash outflow of these measures as well as the previous and the recent excise duty hike and DA freeze (amounting to around 0.8 per cent of GDP), we now revise our baseline fiscal deficit (excluding extra-budgetary resources (EBR)) to 7.9 per cent of the revised GDP in FY21 from 3.5 per cent earlier, owing to lower revenues and higher expenditure against the backdrop of COVID-19 pandemic,” the SBI’s research report Ecowrap. said. Baseline fiscal deficit based on CSO’s earlier estimates of GDP is around 7.1 per cent of GDP, it added.

“We estimate a 4.5 per cent direct impact on fiscal deficit purely because of revenue shortfall / automatic fiscal stabilizer and a 0.9 per cent indirect effect because of GDP change,” the report said. The government Rs 20 trillion package includes Rs 1.7 trillion of fiscal stimulus announced in the first phase, Rs 5.6 trillion stimulus provided through various monetary policy measures and Rs 5.94 trillion through the second phase, implying Rs 6.70 trillion package is still to be announced.

Govt may breach fiscal deficit target; need for stimulus rises: Report

The government has set a 3.3 per cent fiscal deficit target for the current fiscal.

The government might breach the fiscal deficit target this financial year amid drop in the revenue mobilisation and expected additional expenditure by the government, says a report. According to Dun & Bradstreet’s Economy Forecast, the need for fiscal stimulus has increased even as the government finances remain “strained”.

“We expect that the drop in the revenue mobilisation of the government and likelihood of additional expenditure by the government might breach the fiscal deficit target in FY20,” Dun & Bradstreet India Chief Economist Arun Singh said. The government has set a 3.3 per cent fiscal deficit target for the current fiscal.

Singh further added that given the resources constraints, increase in fiscal deficit might lead to crowding out of private investments. According to the report, corporate liabilities are already higher. The balance-sheets of corporates, government, banks and households remain constrained or weak and revenue collection will play an important role.

“Revenue collection will thus be important for the government to implement a fiscal stimulus. To do that, tax reforms are needed. GST should be simplified further, and direct tax collections should increase,” Singh said. As per the report, the index of industrial production is likely to remain subdued in the short to medium term amid slowdown in demand, lackluster investment and weak exports….

Govt may seek Rs 30,000 crore interim dividend from RBI, says report

Last fiscal, the RBI paid Rs 28,000 crore as interim dividend

The government may seek an interim dividend of about Rs 30,000 crore from the RBI towards the end of the financial year to meet its fiscal deficit target of 3.3 per cent of GDP for 2019-20, sources said.

Government finances have come under pressure due to moderation in revenue collection and a slew of measures taken to lift growth from a six-year low of 5 per cent in the first quarter of the current fiscal. “If required, the government may request the Reserve Bank of India for interim dividend of Rs 25,000-30,000 crore during the current fiscal,” an official said.

The assessment in this regard would be made in early January, the official added. Apart from the RBI dividend, there are other means of bridging any shortfall, including mop up from disinvestment and higher utilisation of National Small Saving Fund (NSSF), sources added. In the past, the government has taken the route of seeking interim dividend from the RBI to balance its account. Last fiscal, the RBI paid Rs 28,000 crore as interim dividend.

During 2017-18, the government received Rs 10,000 crore as interim dividend from the central bank. Last month, Governor Shaktikanta Das-led RBI central board gave its nod for transferring to the the government a sum of Rs 1,76,051 crore, comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF)….

FM Sitharaman rules out any immediate plan for expenditure reduction

No change in fiscal deficit target for now, says FM Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman on Sunday said she hoped steep cuts in corporation tax rates would increase compliance, prompting her to stick to the fiscal deficit target for now. “A call will be taken at the RE (Revised Estimates) stage,” Sitharaman told mediapersons, two days after she announced big-bang tax reductions for companies.

The cuts would cost the exchequer Rs 1.45 trillion a year. She ruled out any expenditure cuts as of now, saying that her ministry was asking for a quick release of money by departments and ministries.

Even as bond yields went up after the announcement on Friday, the finance minister Nirmala Sitharaman said she had not taken a decision on revising the borrowing limit for the second half of 2019-20. She has also not considered going for foreign currency-denominated borrowings. The government has budgeted for Rs 7.1 trillion as gross borrowing in this fiscal year. Of this, Rs 4.4 trillion, or about 62 per cent of the total, is being borrowed in the first half.

Gross borrowings are almost equal to the Centre’s fiscal deficit in absolute terms. In proportion to GDP, the fiscal deficit is pegged at 3.3 per cent for FY20. The deficit has touched almost 78 per cent of the Budget Estimates in just four months of the year. Even before the cuts, direct taxes grew at a muted 5 per cent till about the middle of September, increasing the required growth rate to 27 per cent in the remaining part of the year from around 17 per cent assessed in the budgetary estimates…

Rahul’s income plan for poor may cost more than Budget 2019’s subsidy bill

Congress’ proposed minimum income guarantee scheme will reportedly require Rs 3.5 trillion at its peak

If fully implemented, Rahul Gandhi’s proposed minimum income guarantee scheme, or NYAY, would cost more than Interim Budget 2019’s total subsidy expenditure of Rs 3.34 trillion. Its envisaged annual outlay, at a reported Rs 3.5 trillion, would amount to about 1.7 per cent of the Budget’s estimated GDP for 2019-2020 at Rs 210.07 trillion — or about half of the fiscal deficit for 2019-2020 at 3.4 per cent of GDP.

Congress President Gandhi on Monday said that if his party were to come to power at the Centre, it would provide a minimum income of Rs 6,000 per month to 20 per cent poorest households.(Economy News)

At its peak, the cost of the Congress’ proposed scheme would be nearly six times the 2019-2020 Budget Estimates for the outlay on the Mahatma Gandhi National Rural Employment Guarantee Program (MGNREGA) at Rs 60,000 crore. In January 2019, the government made an additional allocation of over Rs 6,000 crore to MGNREGA, taking the total allocation to Rs 61,084 crore, which was highest ever in a financial year. Congress reportedly intends to continue MGNREGA even if the minimum income plan is implemented.

It would also amount to over 4.5 times the cost of the Rs 75,000-crore Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) scheme. Under the latter, Rs 6,000 per year would be disbursed in three instalments to around 125 million small and marginal farmers who hold cultivable land of up to two hectares.

Interim Budget 2019: What’s in store for investors, taxpayers, economy?

From doling out sops for the farm sector and providing some relief to the individual income-tax payers, here’s what leading brokerages expect from the budget

Interim Budget 2019: With barely a few days left for the NDA (National Democratic Alliance) government to present the Interim Budget 2019, most domestic and foreign brokerages expect the measures to have a populist undertone ahead of the general elections scheduled for April / May 2019. From doling out sops for the farm sector and providing some relief to the individual income-tax payers, here’s what leading brokerages expect.

CLSA

The pressure to further expand the farmer welfare programme ahead of the 2019 national elections is high for PM Modi. A possible announcement of a nationwide direct farmer support scheme is quite likely, or possibly even earlier. A Telangana-style scheme could cost ~ Rs1.2trn, further complicating fiscal maths, as it could be a recurring liability. The RBI’s possible large dividend might help just one time.

The GST-led tax revenue shortfall of 75-80bps of GDP is not reflected in the reduced government expenditure for FY19 due to off-balance-sheet funding, which is not a sustainable solution and will create its own problems later and distort the reported fiscal deficit for FY19…

Bank of America Merrill Lynch

We expect the Center to target a fiscal deficit of 3.5% of GDP in FY20, after ending FY19 at 3.7%, 40bp higher than target. This should be funded by running down the Center’s surplus with the RBI without additional issuance. While a pre-election Budget should ideally not propose new direct taxes, the finance minister should take steps to alleviate stress in rural India (metaphorically Bharat) via subvention or direct income transfer and for small industries via subvention…

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