Significant fiscal constraints to continue going forward, says JPMorgan’s James Sullivan

The Union Budget 2020 was in line with JPMorgan’s expectations, however, it believes that "significant fiscal constraints" will continue going forward. "The government has to walk a very fine line between stimulating the economy this year and still maintaining an overall aura of fiscal responsibility," said James Sullivan, managing director and head of Asia equity research at JPMorgan.

Finance minister Nirmala Sitharaman presented the Union Budget 2020 in the Parliament on Saturday with the key announcements being the new tax slabs, proposal to raise banks' deposit insurance, LIC IPO launch, among others. Among the things that got costlier are cigarettes, tobacco products, medical equipments and others due to hike in taxes.

“On the tax collection side, it is important to note that tax collections in 9 months of FY20 have fallen by 3 percent. If you look for what is required in the last quarter of the year to get to the full-year budget number...the number assumes that the tax collections will increase by about 19 percent in the final quarter. We think 5 percent growth rate is more realistic. So we are expecting the tax collections will miss the target this year, that sets a difficult bar as we look forward into the next fiscal year,” said Sullivan.