Interim Budget 2019: A fairly balanced budget where no one can be unhappy

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From an economic standpoint, the broader question is as to how would these numbers add up in terms of ensuring that the deficit is contained at 3.4% in FY20? Quite clearly, there is an assumption that underlying growth will be robust as this is the only way in which there will be an increase in revenue collections, especially on the GST (goods and services tax) front. In a way, this may be a reasonable assumption given that the concessions provided to a large section of people either through direct transfers of tax relief will increase purchasing power that should ideally be directed at consumption to a large extent. Industries like auto, FMCG, durable goods, garments can expect to see some benefits percolating to an extent on this score. The Finance Minister has been positive about the GST collections even for this year, considering that there has been skepticism on whether or not the target will be attained. 

As the FM has juxtaposed the same with lower rates, the message sent out is that contrary to what conventional wisdom dictates; lower rates can actually increase revenue by widening the consumption levels, which is how theory says it should work. This will hold the clue going forward as the benefits given in tax relief is a known quantity which will definitely not be missed while collections depend on how the economy performs. The Budget has assumed that the increase in income tax collections would be by Rs 91,000 crore, which is almost the same as that last year even though concessions have been given. It is assumed that more people paying lower taxes will achieve this target. 

An interesting number here is the revision in the non-tax revenue component of dividend from the Reserve Bank of India (RBI), which is higher than budgeted in FY19 and still higher in FY20. Quite clearly, the RBI may be paying an interim dividend and there could be some movement from the reserves next year. 

Maintenance of the fiscal deficit in this range is a positive signal for the market in terms of how liquidity will be affected on account of government borrowing. But gross borrowings are higher at Rs 7.10 lakh crore, while net borrowings are lower through switching and buybacks. This is something that needs to be watched as it can lead to pressure in the market. 

The interesting part, however, is disinvestment that continues to be budgeted at higher levels and look less realistic considering that it has always been a struggle to meet the target through inter-PSU sale or insurance companies buying the stake. Therefore, while the amount of Rs 90,000 crore looks very high, it does seem that it will be managed at the end of the day, just like was down this year. 

It is, hence, a fairly balanced budget where no one can be unhappy. The important question will be asked during the course of the year, on whether or not these numbers will be achieved.