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Fitch Projects India's Fiscal Deficit To Fall To 3.6% In 2019-20

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On Monday, Fitch Solutions, the research arm of Fitch Group projected the Indian government's fiscal deficit to overshoot the budgeted target by 0.2 percent to 3.6 percent of GDP (gross domestic product) for the fiscal year 2019-20.

It said that in the Budget 2019, a strong populist bend was seen ahead of the general assembly elections due by May 2019. Its note said that this was expected considering that the ruling Bharatiya Janata Party (BJP) would look to shore up its popularity following its loss in three agrarian states at the November-December 2018 state legislative assembly elections.

Fitch Projects India's Fiscal Deficit To Fall To 3.6% In 2019-20
 

"We believe that expenditure growth will exceed the government's projections, giving our expectation for high election spending and the budget speech's repeated emphasis that 'if necessary, additional funds will be provided'. Additionally, the government's revenue growth projections also appear too optimistic given its sweeping tax rebates for the middle class and small business," Fitch Solutions said in a note titled 'India's Populist FY2019-20 Budget To Delay Fiscal Consolidation'.

The research firm revised its fiscal deficit forecast accordingly for the central government to arrive at 3.6 percent of GDP in FY 2019-20, from the previous 3 percent.

"We believe that continued fiscal stimulus by the central government will see the government miss its goal of lowering its fiscal deficit to 3 per cent of GDP by FY2020-21," it further said.

The central government's plan is to spend a total of Rs 27.8 lakh crore in fiscal 2019-20, a 13.3 percent increase when compared to 2018-19 revised budget estimates.

"Although agriculture, rural development and transport infrastructure remain the largest expenditure areas, the budget speech focused heavily on agriculture, social welfare, education, and healthcare, likely aimed at appealing to members of scheduled castes and scheduled tribes, which form 25 per cent of the total population, and farmers, which account for 58 per cent of India's labour force," Fitch Solutions said.

It pointed out that agriculture spending as a proportion of total expenditures rose to 5.4 percent in 2019-20, from 3.5 percent in the 2018-19 revised budget estimates, suggesting a populist shift in the government's expenditure patterns.

In the Budget presentation, Finance Minister Piyush Goyal told that the government has provided Rs 20,000 crore in 2018-19 and Rs 75,000 crore in 2019-20 for providing income support to farmers, leading to the 0.1 percent slippage in the fiscal deficit to 3.4 percent for 2018-19.

Story first published: Monday, February 4, 2019, 16:33 [IST]
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