PM Modi insists it will be a non-populist Budget; experts also feel this govt has shown willingness to buck past trends and concentrate on fiscal deficit targets.
New Delhi: With the summer of 2019 clearly in the crosshairs of the Narendra Modi government, the build-up to its last full budget has been rife with expectation that it will be one filled with populist announcements that can help it retain power next year.
However, there are some key obstacles to getting this done, not least of which is the Prime Minister’s recent indication that the budget for 2018-19 will not be populist. In an interview to Times Now before his visit to the World Economic Forum in Davos last week, Modi had said his timetable depended on working for the common man, and not on the schedule for elections, when asked if he was under political pressure to announce a populist budget in anticipation of the 2019 elections. And there are sound economic arguments behind this.
GST impact
With the implementation of the Goods and Services Tax (GST) last year, the government no longer holds the reins to indirect taxes – a popular form of instant impact to the end consumer.
All indirect taxes, other than customs duty, now fall under the purview of the GST Council. This, in turn, means that the lawmakers can no longer indulge in the usual annual alterations in a bid to peddle near-term political interests.
Given that this is the first budget since the implementation of GST, it is more likely to pose a bigger challenge in terms of maintaining deficit targets while holding off spending and boosting economic growth.
Balancing act
Even though the pressure of pulling out a goody bag of populist announcements cannot be completely ruled out, the government finds itself in a tight spot. Balancing giveaways and, at the same time, maintaining current deficit targets will be a hard act.
Jayant Manglik, president of Religare Broking, predicts: “The government is committed to fiscal deficit targets, so it will not be overly populist.” The government had set its fiscal deficit target at 3.2 per cent of the gross domestic product for 2017-18.
In December, the government announced it would borrow an additional Rs 50,000 crore in the fiscal year, following the plunge in tax collections after the launch of GST in July 2017. By October, the government had already spent about 60 per cent of the total spending, while tax collection remained at 48 per cent of the target.
This has made fairly certain the fiscal deficit target would be breached for the first time in four years. It is estimated that the fiscal deficit could now rise to 3.5 per cent of the GDP.
“The government has worked hard to earn macro stability through fiscal consolidation and it should not fritter it away, especially when global risks remain and general elections are 14-15 months away,” says Sachidanand Shukla, chief economist, Mahindra & Mahindra.
Antique Stock Broking Limited, meanwhile, expects a 3.2 per cent fiscal deficit to the GDP (vs 3.0 per cent), as it will allow for some flexibility in spending on flagship schemes in agriculture/ infrastructure/ housing without setting the budget off course from the path of consolidation.
The government will need to take a call between cutting expenditure on the one hand to maintain the deficit, and in turn partly stymieing growth, and on the other splurging in the budget, thereby maintaining a higher deficit target for the next year.
Neither of the options are particularly appealing as economic growth remains sluggish and the government awaits an uptick in post-GST revenue collection.