With the Union Budget to be presented in less than 24 hours, markets and economists will be keeping a close watch on the key numbers right from growth to tax collections to fiscal deficit.
Chief India Economist at HSBC Pranjul Bhandari has come out with a report saying there is a need to keep them simple and boring.
“What is happening on the fiscal front in FY20 is well known, that there has been a big shortage of tax collections; privatisation receipts have disappointed and therefore we are going to breach our fiscal deficit target by about 0.5 percent of GDP, which is admissible under Fiscal Responsibility and Budget Management Act,” said Bhandari in an interview with CNBC-TV18.
“I think what a lot of people are not realising is that in FY21, the fiscal challenges are probably even harder than FY20 and there are 3 reasons for it. First, growth is likely to remain below potential for the whole year so there will be continuous clamour to do something, give some sop. Second, we have got some free money in FY20, the RBI excess capital which is not coming in FY21 and third, the borrowing pot has squeezed a lot; the interest rate spread is already very high. So the government cannot borrow too much from the market,” she added.
“Also there are other problems. For example, there was a lot of borrowing done from the national small saving funds but that cannot happen anymore because a lot of national small savings has already been utilised. So, this creates a problem for FY21 finances. We think the government will do its bit, we think they will try to tighten the goods and services tax (GST). We are expecting higher GST revenues in FY21. We expect a GST buoyancy of 1.2 which is quite high, last year it was about only 0.5," he noted.
According to Bhandari, any demand stimulus should be backed by asset sales and FY21 is not going to be a year of consolidation. “We see the fiscal deficit fall from 3.8 percent in FY20 to 3.7 percent in FY21, just 0.1 percent of consolidation. We do think the government will announce a lower number closer to 3.5 percent but the risk will be that towards the end of the year, it will turn out to be more than 3.5. We think 3.7 is a realistic number for FY21,” she added.
First Published: Jan 31, 2020 1:25 PM IST