Budget 2020: Not ideal for 100m sprint, but promises a bit for the marathoner

In a challenging environment, most market participants had hoped the government would give them steroids to tide them over in the short-term – expectations on relaxation on LTCG to stimulus to boost demand were broadly belied. However, for the marathoner, this budget promises quite a bit.

So first a bit of perspective, to view the prism of marathoner about the past - when we look at a block of 5 years, we see 2 broad areas which have seen a significant increase in government spending. First was increase in salaries and pension to 3.2 million central government employees. Over a block of 5 years (2014-19 over 2009-14 block), the increase in salaries and pension has gone up cumulatively by approximately $145 billion. This is primarily pay commission recommendation, OROP implementation, etc. The second big change in government spends has been in recapitalising PSU banks ($45 billion). So, if these were the two big outlay changes, let’s also see where the government managed to raise additional resources. As against this, the increased government inflows by increasing excise on oil ($180 billion) and disinvestment ($45 billion). Now, incrementally, the salary increases will be far more modest for the next 3-4 years, also the massive recap of PSU banks seem to be nearing its end. For the first time in some time, today’s budget actually expects PSU banks to give it some dividend income, as they will become profitable. So effectively, if one looks at a block of the last 5 years, government spending has done the massive heavy lifting.

So while we look at this year’s budget and reflect on fiscal deficit (going up) and pressure on government finances, we need to keep in mind that there are potential tailwinds for the government to spend in the coming years, as these large spends like pay commission or PSU bank recapitalisation are mostly behind us.