India: FY20 fiscal deficit target to be maintained – Standard Chartered

Standard Chartered analysts point out that India’s final budget for FY20 (year ending March 2020) will be presented on 5 July by Nirmala Sitharaman, the country’s first full-time female finance minister.

Key Quotes

“The new government faces several challenges in delivering the budget: (1) increasing calls for fiscal stimulus in a slowing economy; (2) an already-wide fiscal deficit, accounting for off-balance-sheet spending; (3) a lack of clarity on the growth impact of the fiscal stimulus announced in the interim budget in February 2019 (amounting to c.0.5% of GDP and not yet fully implemented); and (4) the pending report by the Jalan Committee on the appropriate economic capital framework for the Reserve Bank of India (RBI), which may have fiscal implications.”

“Given that monetary policy is already accommodative, we believe sticking to existing fiscal targets would be most beneficial course of action for the economy in the short and long term.”

“We expect the government to maintain the FY20 fiscal deficit target of 3.4% of GDP set in February 2019; this is unchanged from the actual FY19 deficit.”

“FY20 revenue and expenditure projections are likely to be adjusted lower given the deviation from the revised estimates in FY19. Both revenue and spending undershot revised estimates by 1% of GDP.”

“We expect downward revisions to FY20 revenue projections to be driven primarily by lower income tax and GST collection targets. Expenditure projections are likely to be lowered accordingly in order to meet the 3.4% deficit target; we expect cuts to be made mostly to revenue expenditure rather than capital expenditure targets, which are already moderate. Despite expected downward revisions, the final budget presented in July might still overestimate revenues and expenditures in FY20, in line with the trend in past years.”