View on the Budget: Kumaresh Ramakrishnan, Head-Fixed Income

"The Government presented the fifth Union budget of its five year term today. Being an election year, the budget was an interim one and hence did not have details spelt out on capex related spending. Nominal GDP growth for FY 20 is assumed somewhat unchanged over the previous year at 11%. This is proposed to be fuelled by a 14.30% (20.51%) growth in Revenue receipts. Expenditure is projected to grow 13.3% (14.7%) over the same period. Both revenue and expenditure growth assumptions for FY 20 are lower than current year numbers. Assumptions for non-tax revenue including disinvestment and dividends from RBI / Banks and other PSUs appear largely in line with the current year numbers. Also direct tax collections are projected to grow lower than in the current year. However, GST collections is estimated at 18%, which appears optimistic given the rather sluggish numbers seen in the current fiscal. The budget has sops for the farm sector with additional fiscal concession of INR 250 bio for FY 19 and INR 750 bio for FY 20. Besides tax rebates for the salaried class in the lower income brackets (upto INR 5 lakhs), will have some revenue implications. This has led to the fiscal deficit for both FY 19 (expected 3.3%) and FY 20 being now pegged at 3.4% (expected 3.1%), which is higher than expected. The full budget which is likely in July 2019, would have more details on spending and revenue mobilization. It is likely that the fiscal deficit numbers could face some more pressure for FY 20 if some spending not included presently are factored in at the July budget. Borrowings are higher both for the current fiscal (by INR 37000 cr) and FY 20 are slightly higher to finance the higher than expected fiscal deficit. Higher Govt borrowing is likely to have a near term negative impact on bond yields at the mid to the long end."