Budget, Economy and Markets July 2019 Union Budget 2019-20 (Final) - PowerPoint PPT Presentation

Budget, Economy and Markets July 2019

Union Budget 2019-20 (Final)

Back drop Economic backdrop and market expectations ahead of Budget Weak tax revenue due to Clamor for fiscal policy initial challenges in GST support and weak economic activity Mounting subsidy Need for continued payables infrastructure support Expectation of higher Need to address financial allocation in social sector sector challenges schemes Source: SBIMF Research;

Interim vs. Final budget: What Changed (and What not) • The final budget for 2019-20 retained the fiscal deficit, aggregate receipts and expenditure target presented in interim budget. • Nominal GDP projection has seen marginal upward revision, leading the fiscal deficit as (% of GDP) to come down to 3.3% vs. 3.4% during interim budget. • Both the revenue and capital expenditure have been kept unchanged. • The contours of receipts, however, has been changed. Tax collections have been revised down while non-tax revenue and disinvestment targets for FY20 has been scaled up. Source: indiabudget.nic.in, SBIMF Research; NB: RE is revised estimated and P is provisional

Budget in Charts Revenue and primary deficit to be maintained at similar levels Fiscal deficit targeted at 3.3% in FY20 Net market borrowings for dated securities broadly at similar Optimistic receipts growth targets for FY20 levels since FY12 (nine years) Source: indiabudget.nic.in, SBIMF Research

Receipts shortfall led to expenditure cut in FY18 and FY19 FY18 and FY19 saw significant shortfall in revenue… …leading to expenditure cut Actual minus Budgeted Receipts Actual minus Budgeted Receipts • The shortfall in receipts is primarily emanating from weakness in indirect tax revenue • Expenditure cuts are being met partly via postponing the subsidy dues Source: indiabudget.nic.in, CMIE Economic Outlook, SBIMF Research

Government resorts to non-tax means to garner revenue Central Govt. tax buoyancy is falling short of the desired 12% Disinvestment and dividend/profit transfer has increased (of GDP) seen in FY08 14 13 13 12 12 12 12 12 LTA since FY92: 8.4% 11 11 11 12 9 9 10 9 9 9 8 8 8 7 8 7 7 8 6 5 5 6 4 3 3 4 3 2 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 BE Disinvestment & Dividend (% of Centre's Total Receipts) Rs. 3.1 trillion has been collected via divestment between Dividend and profit transfer has risen 3x since FY13 FY15-FY19 vs. Rs. 2.1 trillion garnered between FY92 -FY14 Source: indiabudget.nic.in, CMIE Economic Outlook, SBIMF Research

FY20 final tax growth still a tad optimistic Optimistic FY20 tax growth assumptions • The tax assumptions for FY20 have been brought down (from the interim budget) in income tax and GST by Rs. 510 billion and Rs. 979 billion respectively. • The revised monthly run-rate for GST collection stands at Rs 1.03 trillion for remaining nine months, which is in line with Rs 1.05 trillion garnered monthly during April-June 2019. Total GST projection (SGST+CGST+IGST+Cess) for FY20 now stands at Rs. 12.4 trillion, 5.3% higher than Rs. 11.8 trillion collected in FY19. • Excise collection targets have been pulled up on the back of Rs.2/liter hike on petrol and diesel. • Despite these sub-categories tinkering, 18% growth expected GST assumptions brought down; Rs. 1.03 trillion needs to for FY20 overall gross tax revenue looks a tad bit ambitious. be collected on monthly basis for remaining nine months. Gross tax to GDP is projected at 11.7% in FY20 vs. 10.9% in FY19. • There has been minor upward revision to dividend/profit receipts (Rs. 1635 billion), but may be achievable. We expect RBI to make a dividend transfer of at least Rs. 1 trillion in this fiscal. • To sum, the revenue assumptions are still on the ambitious side. • Markets’ hope hinges on improving the GST compliance. The final decision on RBI capital reserves and the momentum in actual disinvestment will also be closely watched. Source: indiabudget.nic.in, CMIE Economic Outlook, SBIMF Research

Expenditure (as % of GDP) lower compared to historic trend Expenditure (as % of GDP) budgeted to increase marginally; Capital expenditure (% of GDP) kept unchanged while though still lower when compared to historic trends revenue expenditure (% of GDP) increased Subsidy outgo kept unchanged in FY20 despite mounting Interest Outgo sticky at 3.1-3.2% of GDP Food Corporation of India (FCI) debt Source: indiabudget.nic.in, SBIMF Research

Expenditure through resources of PSEs Extra budgetary sources are expected to fund expenditure Expenditure (Budget and Resources of Public Sector summing to 2.5% of GDP vs. 1.8% five years back Enterprises combined) is budgeted to come down • Government has brought down its expenditure plans through internal and extra budgetary resources (IEBR) of PSEs. Most of the reduction in final numbers is on account of reduced borrowing from FCI via others. • This may be difficult to achieve given that no additional subsidy payment has been apportioned for FCI in the final budget. Source: indiabudget.nic.in, SBIMF Research

Markets are facing higher borrowing from PSEs Expenditure through resources of PSEs remains high Market borrowings from PSEs are high Internal resources of PSEs have decreased while borrowings via bonds, ECBs and other have increased sharply Source: indiabudget.nic.in, SBIMF Research

Rural Oriented Social Sector Schemes Various rural oriented social sector schemes is projected to see an outlay of Rs. 3.2 trillion 29% higher than 2.5 trillion in FY19 RE, primarily due to Rs. 750 billion penciled for Farmer income support scheme in FY20 in Rs billion FY18 FY19 RE FY20 BE- Final Income Support Scheme - 200 750 Mahatma Gandhi National Rural Employment Guarantee Program 552 611 600 National Health Mission - Rural 262 252 270 Pradhan Mantri Gram Sadak Yojna 169 155 190 Pradhan Mantri Awas Yojna (PMAY) - Rural 226 199 190 Interest Subsidy for Short Term Credit to Farmers 130 150 180 Crop Insurance Scheme 94 130 140 Green Revolution 111 118 126 National Rural Drinking Water Mission 70 55 100 Swachh Bharat Mission - Rural 167 145 100 Others 358 447 538 Total rural oriented social sector schemes 2,139 2,462 3,184 % growth 15.1 29.3 Source: indiabudget.nic.in, SBIMF Research;

Infrastructure Oriented Spending Infrastructure spending is pegged at Rs. 6.4 trillion (adding both Budgetary support and IEBR) vs. 6.3 trillion in FY19* FY18 FY19 RE FY20 BE- Final in Rs billion Budgetary IEBR Total Budgetary IEBR Total Budgetary IEBR Total Ministry of Railways 452 586 1,038 551 858 1,409 680 941 1,621 Ministry of Road Transport and Highways 610 505 1,115 786 620 1,406 830 750 1,580 Ministry of Housing and Urban Affairs 401 189 590 430 197 627 480 194 674 Ministry of Power 140 594 734 156 732 888 159 424 583 Rural-Housing 226 73 299 199 146 345 190 262 452 Telecom (ex-establishment expenditure) 123 118 242 92 157 249 145 139 284 Department of Atomic Energy 151 66 217 170 78 248 169 82 251 PMGSY (Part of Rural roads allocation) 169 - 169 155 - 155 190 - 190 Ministry of Drinking water and sanitation 239 - 239 200 150 350 200 - 200 Ministry of New and Renewable Energy 36 105 141 51 108 160 53 124 176 Others 165 145 310 267 184 451 213 210 423 Total Infrastructure spending 2,712 2,382 5,094 3,057 3,230 6,288 3,309 3,125 6,434 % growth 11.9 18.4 14.9 12.7 35.6 23.4 8.2 -3.3 2.3 Source: indiabudget.nic.in, SBIMF Research; NB: * IEBR stands for Internal and Extra Budgetary Resources