Five macro themes one should watch this budget: Morgan Stanley

"Policy makers will seek to consolidate fiscal deficit while boosting growth predominantly"

Against the economic backdrop and upcoming state elections, the key debate is whether the government will tilt towards activating fiscal easing to revive domestic demand and take a more populist stance in the budget and initiate transfers to households.
 
In our view, policy makers will remain on the path of seeking to consolidate fiscal deficit while boosting growth predominantly via encouraging public capex. As it is, fiscal space is limited with a consolidated national fiscal deficit of 6.4% of GDP in F2017 and government debt of 68.0% of GDP. Moreover, from a macro perspective, boosting capex remains the key