Reported by: banking|Updated: February 5, 2019
CRISIL: Now the need to address farm distress and support to middle class have stretched fiscal deficit further.
For fiscal 2020, divestments will need to be front-loaded to achieve the ambitious target of Rs 90,000 crore and tax collections aggressively pursued This will be important to keep government bond yields in check. — Dharmakirti Joshi, Chief Economist, CRISIL Ltd
Increase in disposable incomes for urban and rural India will provide a kicker to consumption demand. Improvement in consumer sentiment will boost demand for low value durables due to additional income of Rs 3,000 -10,000 in the hands of consumers next fiscal. Execution in infrastructure has been splendid. The revised capital outlay (budgetary allocation + internal and extra budgetary resources) for infrastructure for this fiscal is 11% higher vs the budget estimate, with civil aviation and power seeing the highest achievement ratios. A note of caution is, however, warranted since actual expenditure this fiscal fell short by 10% compared with the revised estimate then presented. — Amish Mehta, COO, CRISIL Ltd
In real estate, the relaxation on holding period of unsold inventory for taxation of notional rental income to two years would provide marginal relief to developers under stress because of tight liquidity and weak absorption. Though the overall unsold inventory remains moderate to high in metros, the share of ready-to-move unsold inventory is small. Hence, the relaxation by one more year will benefit only a section of developers. — Amish Mehta, COO, CRISIL Ltd
FMCG, low-ticket consumer durables, two-wheeler manufacturers and organised retailers are expected to benefit from the income tax rebate given to assessees with net taxable income of up to Rs 5 lakh and the direct transfer of incomes to farmers owning less than 2 hectare of land. While the tax sops by themselves are not significant, the feel-good factor generated would increase the offtake of low-value consumer goods and durables. — Prasad Koparkar, Senior Director, CRISIL Research
Possibility of rate cuts ruled out post the fiscal slippage
YES BANK’s economics, research report: • FY19 to see a minor fiscal slippage of 0.1% of GDP to 3.4% led by GST shortfall and provision for farm income scheme
• FY20 fiscal deficit to remain unchanged at 3.4%, a deviation from the FRBM implied milestone of 3.1%
• While the quality of fiscal adjustment is slated to improve in FY19 RE over BE, the same is expected to deteriorate on account of revenue spending led farm stimulus in FY20 with capital expenditure bearing the brunt of adjustment
• Despite two years of consecutive slippages, the government has reaffirmed its commitment to achieve the FRBM implied milestone of 3.0% fiscal deficit in FY211
• To boost consumption growth via income transfer scheme to farmers and higher disposable income to middle class
• We continue to expect RBI to revert to its ‘neutral’ policy stance from ‘calibrated tightening’ currently. Possibility of rate cuts ruled out post the fiscal slippage.
• FY19 to see Rs 300 bn additional g-sec borrowing. FY20 net market borrowing estimate of Rs 4.7 tn is on the higher side of consensus expectations.
• We continue to expect 10Y g-sec yield at 7.50% by Mar-19. Yields to harden thereafter towards 7.50-7.75% by Mar-20.
Providing positive impulses to spending
Rajesh Mokashi, MD & CEO, CARE ratings: The Interim Budget has been pragmatic and prudent as can be seen from the final fiscal numbers which are on the FRBM path. The numbers presented look like that they will not cause any disruption on liquidity and hence is neutral in a way. While providing certain sops to the middle class and the farmer community, the focus has been on providing positive impulses to spending while keeping up the tempo of capex. This we believe will be vital for continued growth.
While farmers and SMEs would be gaining from the interest rate subvention it may be expected that banks would be better off when lending to these entities. The increase in income level as a consequence of the income support schemes, interest subvention and tax exemptions would help stimulate consumption and thereby domestic economic output. At the same time, the intent of the government towards fiscal consolidation has not seen much deviation. The increased cash in the system on account of the government income augmenting measures could have an inflationary impact which could however be restricted to specific commodities based on the consumer spending and capacity utilizations rates of various industries. The impact on the overall price levels would be limited.
Pre-election spending pressures
Stephen Schwartz, Head of Asia-Pacific Sovereigns and Thomas Rookmaaker, Director and Primary Sovereign analyst for India, Fitch Ratings: The announced interim budget is largely as we anticipated, with pre-election spending pressures giving rise to a second consecutive year of fiscal slippage by a modest margin, thereby delaying plans to reduce the high general five fiscal deficit and debt burden. Longer term fiscal trends are more important to the sovereign rating profile, and we will evaluate these in the context of the post-election budget, which should provide additional guidance on the medium term outlook.
1 lakh digital villages will increase business opportunities there
Views of Forum of Industry Academic Knowledge Sharing (FIAKS) Community: One of the key takeaways from Budget 2019 is the 2% interest subvention for the MSME players in loans up to Rs1 crore. This will ease their working capital situation. Another positive development is the announcement of pension scheme for 42 crore workers in the unorganized sector. This free up working capital of micro-entrepreneurs such as barbers, recharge counters, and small-time traders which they otherwise keep reserved for their post-retirement plans.
Also, 1 lakh digital villages will be created over the next 5 years. This will directly increase the business opportunities in Indian villages, which is a major move considering that around two-third of our population dwells in rural areas, while also increasing the adoption of cashless payments in these regions. This will increase microenterprise-centric data and by doing so, will further extend cost-effective, tech-driven financial services using unconventional and cutting-edge approaches.”
If the Farmer pays promptly then 3% additional rebate on the interest. This is very impactful: Encourages & brings about financial discipline – good behaviour. The Farmer pays less amount as interest. The farmer’s credit history strengthens – helps him get access to more formal banking products & services at affordable rates
The “Thank you note” to Tax payers, made us feel officially proud for the first time. Focus of Govt on rural and startup is clearly visible and this is a long term impact work. We are glad that we are a Startup working towards helping accomplish critical activities which are part of the vision of Govt. Certain modules of Startup growth hack and customer retention have been applied to reward good behaviour and we stand validated by the government for our business models.
What was missed out was that the carrot of Farmer support has been shown but the farmers need a stool to stand on it. The stool is BC Agent whose income of AEPS is under pressure and GST is impacting his earnings meaninglessly at 27% with another carrot hanging of 40 lakh turnover exemption but Reverse Charge Mechanism applied.
Oxygen ise marne nahin dega aur Hydrogen ise jeene nahin dega.
Strengthening the agri-ecosystem of the country
Vijay Kumar, MD & CEO, NCDEX: This is a historical day for Indian farmers and agriculture sector overall. NCDEX believes that the steps will benefit small & marginal farmers and help in strengthening the agri-ecosystem of the country. Introduction of Direct Benefit Payment to farmers is a major policy shift in ensuring
income support for the small farmers. Direct Benefit Transfers and Interest subvention extension in case of crop failures will help in protecting the farmers from the risks they face in providing the population with its food requirements, while at
the same time encouraging repayment of loans. This will strengthen the farmers to access the national and electronic markets for best value of their produce. Inclusion of Animal Husbandry and Fisheries under the Interest Subvention scheme will also bring the farmers in these sectors on par with the other crop farmers.