Moneycontrol
Feb 18, 2016 02:43 PM IST | Source: Moneycontrol.com

Budget 2016: Infra & rural spend may delay deficit goals, says Motilal Oswal

This is unlikely to be repeated, particularly since tax revenue from the oil sector is now fairly static to oil price changes due to the specific nature of the taxes. Deflation also derailed the disinvestment program, as most PSUs shorlisted were from the commodity and infra sectors, affected by deflation.

Budget 2016: Infra & rural spend may delay deficit goals, says Motilal Oswal
The FY17 Union Budget would be presented in the backdrop of deflation that has caused both direct and indirect taxes to grow at a slower rate. FY16 saw some additional tax effort, including raised rates and stricter compliance, resulting in additional tax revenues.

This is unlikely to be repeated, particularly since tax revenue from the oil sector is now fairly static to oil price changes due to the specific nature of the taxes. Deflation also derailed the disinvestment program, as most PSUs shorlisted were from the commodity and infra sectors, affected by deflation.

Expenditure demands – both committed as well as fresh imperatives – on the other hand, have been rising. Committed ones include higher devolution for states and implementing the seventh Pay Commission. Other imperatives include continued infra spend and higher allocation for rural schemes (the rural economy has faced two successive years of drought).

Further consolidation of fiscal deficit might, therefore, need to be deferred for
another year. The better prospects of growth that this would bring is likely to be welcomed by financial markets.
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