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    Budget 2019: What to look for in FM’s speech

    Publish Date: January 30, 2018

    By: Rusmik Oza, Head of Fundamental Research


    Dear all,

    The Union Budget may be one of the biggest news events ahead of the general election this year. This is what you may want to keep an eye out for in the speech on February 1st, 2019.

    Key thing to monitor: Government Finances

    The shortfall of GST collection this fiscal is going to be ~Rs.1,40,000 cr. Even after considering higher interim dividend from RBI and meeting the divestment target (i.e. Rs.80,000 cr) there will be a big shortfall. Expect the Government to build in 15% Net Tax revenue growth in FY20BE with expenditure growth of ~10%. There is very less scope for revenues to go up but heavy slippage on the expenditure front is possible. Kotak Institutional Equities (KIE) expects this year’s Fiscal Deficit to be at 3.5%. Expect FY20BE Fiscal Deficit target to be set at 3.2%. KIE expects this fiscal Net G-Sec borrowing to be higher by Rs.27,000 cr. The Gross G-Sec Borrowing is estimated to be ~Rs.6.7 lakh cr as compared to Rs.5.3 lakh cr in FY19 (higher by Rs.1.4 lakh cr). RBI has been very active with OMOs after the IL&FS issue. This year it is expected to infuse liquidity of Rs.3.36 lakh cr by way of OMOs, which should go down to Rs.1 lakh cr in FY20 (as per KIE estimate).

    KIE estimates summary:

    Corporate tax: Budget 12% growth in FY20E (in line with the 12% growth build in FY19BE). In first nine months of FY19 corporate tax collection has gone up by 16%.
    Personal Inc.Tax: Personal Income Tax: Expect 25% growth assumption for FY20E (same as FY19BE). In first 9 mths of FY19 it has gone up by 15%.
    GST Collections: Pencil Rs.6 lakh cr budget for CGST collection in FY20E. CGST could be Rs.4.7 lakh cr in FY19 Vs budgeted target of Rs.6 lakh cr. In the first nine months of FY19 government has collected Rs.3.4 lakh cr from CGST. Overall GST collections have been Rs.8.1 lakh cr in the first nine months of FY19 (i.e. monthly run rate of Rs.90,000 cr). Overall, Indirect tax collection in FY19 could be higher by ~9% Vs budgeted target of 22% growth. Expect Government to target 13% growth in Indirect Tax collection for FY20BE.
    Non Tax Revenues: Govt. got Rs.40,000 cr from RBI by way of dividend in Aug’18. Expect another Rs.30,000 cr from RBI in FY19. The Government will budget Rs.50,000 cr by way of dividend from RBI in FY20BE. Expect Rs.2.8 lakh cr from Non Tax revenue in FY20BE as compared to Rs.2.7 lakh cr budgeted in FY19E.
    Disinvestments: Expect Gov. to target Rs.80,000 cr in FY20BE (same as FY19BE). Till 1st Dec’18, govt. has raised Rs.33,800 cr in this fiscal year. Transactions of REC, BHEL & NHPC along with SUTI stake sale should allow the government to meet this year’s target of Rs.80,000 cr.
    Capital Expenditure: Expect 10% growth estimate for FY20BE (10% for Defence; 10% for railways & 15% for roads & highways). Expect capital expenditure to slow down to 3% in FY19E due to lower GST collection.

    On announcements, KIE expects the following:

    1.   Sharp focus on rural sector. Farmer support scheme would be announced. This year’s high Minimum Support Price (MSP) has not worked due to record production and low prices. KIE expects the fiscal cost of farm stimulus to be ~0.4-0.8% of GDP.

    2.   Govt. could follow the Telengana model of Rythu Bandhu for Direct Transfer to farmers. Assuming it covers only marginal farmers (i.e. 9.2 cr people) the fiscal cost could be ~Rs.70,000 cr (0.3% of GDP). Covering all the farm holdings could be a costly affair and could cost the government Rs.3 lakh cr (i.e. 1.5% of GDP).

    3.   Government at present provides 2% subvention for short term loans up to Rs.3 lakhs to farmers. Govt may consider increasing this to 4%. This may cost ~Rs.9,000 cr or 0.04% of GDP.

    4.   Government can announce a ‘Zero Premium’ crop insurance. This could cost it additional Rs.5000-6000 cr (i.e. 0.02% of GDP)

    5.   Some of the schemes would be subsumed under the new stimulus package thereby reducing the fiscal impact.

    6.   KIE expects government to talk about the Universal Basic Income Scheme (UBI). They expect them to announce a Rs.700/month direct transfer of cash for below poverty line people (i.e. to ~12 cr people). The outgo on this could be ~Rs.1 lakh cr or 0.5% of GDP.


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