Budget 2018 dilemma win rural voters or stick to deficit plan

Modi's Budget 2018 dilemma: Win rural voters or stick to deficit plan

Modi's Budget 2018 dilemma: Win rural voters or stick to deficit plan on Business Standard. Bond investors have already concluded that Finance Minister Arun Jaitley will deviate from those plans when he delivers his budget on Thursday

Budget 2018 Indian Prime Minister Narendra Modi has a tough balancing act in this week’s budget: maintaining fiscal prudence or handing out cash to placate rural voters ahead of next year’s election.

After scoring a rare sovereign upgrade late last year, Modi wants to keep global investors and creditrating companies on his side. Key to that will be sticking his goal to narrow one of Asia’s largest budget deficits.

Bond investors have already concluded that Finance Minister Arun Jaitley will deviate from those plans when he delivers his budget on Thursday, with yields climbing 96 basis points in the past six months, the most in Asia. In the last full budget before the elections, Jaitley needs a growth boost for an economy that’s slowing down to a four-year low, while appeasing angry young voters, who contributed to the ruling party’s worst performance in Modi’s home state in more than two decades in December.

“The fiscal math is likely to get tougher, as ongoing rural distress and a lack of investment growth may need an immediate ‘fiscal’ helping hand,” said Aayushi Chaudhary, an economist at HSBC Holdings Plc. in Mumbai.

What to Watch For: Budget Deficit Target is 3.2% of GDP in FY2018; 3% in FY2019 Median est. in Bloomberg survey is 3.5% in FY2018 and 3.2% in FY2019 Revenue Target is 21t rupees in FY2018 Monthly GST collections have declined to 867b rupees in December vs 940b in July, when it was introduced Spending Possible boost in capital expenditure from 3.1t rupees in FY2018 More on rural sector, such as jobs program, road, irrigation projects Taxes Possible removal of tax break on capital gains from stock investments

Lowering corporate tax rate from 30% unlikely Borrowing Gross borrowing may rise to 6.5t rupees in FY2019 vs 6.05t expected in current year.

HSBC expects India to miss its fiscal deficit target of 3.2 percent of gross domestic product for the year to March 2018, with the shortfall probably coming in at 3.4 percent amid slower growth, the chaotic implementation of the consumption tax that hit revenues, and a lower dividend from the central bank.

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