With the budget session of parliament just around the end of the week, it has triggered lot of expectations from investors, corporates and common man.

Share Market Live

NSE

A few days back, union finance minister Arun Jaitley, who has temporarily handed charge to Piyush Goyal, hinted that the last budget will be more like an interim budget.

As per the tradition, the outgoing government is supposed to present an interim budget or a vote-on-account before the Lok Sabha elections and the new government presents a full budget for the fiscal year.

Here are what the brokerage houses expect:

Nirmal Bang

The brokerage house expects the union finance minister to present an interim budget on February 1, 2019. Unlike a vote-on-account, which merely puts forth expenditure for approval until a new government is formed, an interim budget is likely to include some policy changes.

The brokerage house said it expects the fiscal deficit for FY19 to come in at 3.5 percent of GDP, higher than the budgeted 3.3 percent. It expects the fiscal deficit for FY20 at 3.5 percent of GDP, primarily on account of the fact that some farm income support scheme is inevitable ahead of the elections.

For the salaried class, the brokerage expects an introduction of 10 percent tax bracket in the range of Rs 5,00,000 - Rs 8,00,000.

It further expects the corporate tax rate for enterprises with a turnover of Rs 250 crore to being cut down from the previous 30 percent to 25 percent, in line with the announcement made during the union budget 2015.

It also expects the net market borrowing is likely to be the tune of Rs 433,600 crore (60 percent of gross fiscal deficit) in FY20, up by around 11 percent from Rs 390,100 crore in FY19.

The bond supply is expected to be in excess of demand, which could limit the room for a bond market rally. Moreover, the pace of open market operations or

OMOs is likely to slow in FY20. Therefore, we expect 10-year G-Secs to trade in the midpoint of 7 percent-7.5 percent for most of FY20, the brokerage said.

Motilal Oswal

Ahead of the general elections, Motilal Oswal said some incentives to the rural sector are likely, indicating that the government’s capital spending could decline again in FY19.

It expects the fiscal deficit to be 3.5 percent of the GDP for the third consecutive year in FY19. However, the government may show high growth for FY20 in its budget with another deficit target of 3.3 percent.

Farmer's relief package, Motilal Oswal believes that the relief package could be a mix of reallocation and new government spending, considering there is a serious constraint in terms of financial resources with the central government to increase spending, especially if it doesn’t want to unsettle the bond market.

It may increase the Mahatma Gandhi National Rural Employment Gurantee Act (MGNREGA) budget to Rs 60,000 crore or by targeted schemes for farmer packages such as cash incentives and/or interest free loans.

Motilal Oswal is of the opinion that the relief package provided to the farmers may become an annual expenditure which would put constraints on the government's fiscal independence.

On corporate tax rate, Motilal Oswal expects the government to not deduct the effective tax rate from 26.5 percent to 25 percent. Further, it is highly unlikely that the government will provide any significant relief in the personal tax rate class.

Standard Chartered

Standard Chartered expects the government to reach its fiscal deficit target of 3.3 percent of GDP for FY19, while fiscal deficit at 3.2 percent of GDP in FY20.

The revenue shortfall is likely due to a sluggish Goods and Services Tax (GST) collection at 0.6 percent of GDP or at Rs 1,10,000 crore, the financial firm said in a report.

While Standard Chartered is of the opinion that an announcement of a major initiative such as farm stimulus is a risk, it does not expect it to have a significant fiscal impact given the implementation challenges. Even in the worst-case scenario, it does not expect a reversal of fiscal consolidation. However, the report added that the widening of the fiscal deficit of 3.5 percent of GDP in FY19 would lead to fiscal consolidation.

The government might commit to a large increase in recurrent expenditure when the fiscal deficit is already high would be difficult.

Standard Chartered in its report said any Reserve Bank of India (RBI) decision to transfer excess capital to the government (whether in cash or bonds) would be unlikely to affect the fiscal deficit, as the government would likely spend them.

While a transfer could boost growth in the short term, the impact would be muted as the RBI was already lending the capital to the government by investing in IGBs. The impact would likely be felt mostly in the rates market via the impact on RBI OMOs.

First Published:Jan 28, 2019 1:03 PM IST