The post-election Budget of PM Modi is a key opportunity to stimulate a declining economy

NEW DELHI: Prime Minister Narendra Modi It has its first chance since a decisive victory in the elections to boost an economy that is rapidly losing its status as one of the fastest growing major in the world.

Finance Minister newly appointed Nirmala Sitharaman Expenditure is expected to increase and provide fiscal relief to consumers in its first budget on Friday. That will probably expand the budget gap to 3.5% of gross domestic product According to a Bloomberg News survey, the year began on April 1 from 3.4% for the interim spending plan for February.



Growth slowed to a five-year low of 5.8% in the first three months of 2019, well below China's 6.4% expansion, which pressures Modi to deliver a stimulus plan to boost consumption, a basis of the economy. With the global outlook turning gloomy amid rising trade tensions, and the Reserve Bank of India is already cutting interest rates three times this year, the focus is shifting towards government to play its role.

A separate report released by the Finance Ministry a day before the budget pegged gross domestic product growth for the current fiscal year at 7%. Political stability will be key to reviving demand and investments in the economy, according to the Economic Survey report.

For the next budget year, the development objective could replace the rigid objective of fiscal austerity, said Soumya Kanti Ghosh, the group's economic adviser at the State Bank of India in Mumbai. Maintaining a particular fiscal number is not as important in the current scenario.

Sitharaman must balance allowing the budget deficit to expand without risking a downgrade in the credit rating and the bond markets. The key to that will be to find additional income to fund higher spending and keep the loans under control.

Here are other key things to keep in mind in the budget:

Taxes



Income from consumption taxes and customs taxes did not reach the targets last year, and Sitharaman will have to find additional resources to finance social assistance programs without increasing the tax burden for people. It is expected to provide relief to consumers by raising the personal income tax threshold for some people in the budget, according to people familiar with the matter.

Analysts at Kotak Mahindra Bank, led by Suvodeep Rakshit, estimate that tax revenues will probably be 1.4 trillion Rs ($ 20 billion) lower than projected in the interim budget. This will be the most important threat to fiscal mathematics, analysts said in a note.

Asset sales



The government can sell shares in state companies to help boost revenues. Last year, it raised Rs 850 billion from the sale of assets such as Coal India Ltd. and Bharat Heavy Electricals Ltd .. disinvestment The target was set at 1 trillion rupees, more than the 900 billion rupees reported in the interim budget, according to Yes Bank analysts led by Shubhada Rao.



Shadow banks



The market will look for any mention of measures by Sitharaman to overcome a crisis in the financial sector, especially shadow lenders. A liquidity crisis faced by non-bank financial companies was a major obstacle to growth, as it reduced their lending capacity, which in turn reduced consumption. As banks in the shadow of India have the most exposure to the real estate sector, any measure to reduce the tax rate on property transactions could benefit the sector, said Ghosh of SBI.

Surplus stocks



The government is trying to obtain greater dividends from the RBI to help increase its revenues and finance the deficit, and the budget can provide a provisional figure on how much will be transferred during the remainder of the fiscal year. The central bank grants dividends to the state each year and made a provisional payment of 280 billion rupees in February. The government has been pushing for the RBI to increase its contribution, and officials of the Ministry of Finance estimate that the central bank has a surplus capital of Rs 3,6 trillion. A panel headed by the former central bank governor, Bimal Jalan, was established to study the RBI capital framework, and his report is yet to be finalized.



Expenditure


One of the key electoral promises of the Bharatiya Janata Party of Modi was to spend $ 1.44 billion to build roads, railroads and other infrastructure in the next five years. Sitharaman is expected to describe the details of this plan, as well as investment in agriculture and other sectors that can be engines of growth. The markets will also seek the amount of capital that the government will inject into state banks after a massive plan of 1.06 trillion rupees last year.

Now that the elections are over and the country has issued an unequivocal verdict, this budget should make some difficult decisions to initiate a series of structural reforms that could unleash corporate investment, said Partha Ray, an economics professor at the Indian Institute of India. Management in Calcutta.

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