'Budget 2020 unlikely to be consequential in pushing GDP growth higher'

The fact that there will be a very large receipt shortfall of Rs 2.5 trillion for the central government this year, there is negligible fiscal space to stimulate economic growth. Consequently, I don’t think Budget 2020 will be consequential in pushing GDP growth higher.

My only expectation from the Union Budget is to incorporate off-Budget spending of CPSEs explicitly and focus on the public sector borrowing requirements (PSBR) rather than the central government’s deficit.

Not only the Public Sector Borrowing Requirement (PSBR) is more relevant from the economy's (or markets’) perspective but the reliance on CPSEs has also increased substantially over the past few years.

A shift from cash-based to accrual-based accounting will also increase transparency and fiscal credibility.

Do you think the government will be able to meet this fiscal deficit target?

Meeting the fiscal deficit target is not impossible for the central government. Even though there was a receipt shortfall of Rs 1.5 trillion last year (FY19), the center almost achieved its fiscal deficit, as the spending was adjusted accordingly.

Therefore, since the fiscal math is cash-based accounting, spending cuts can always help the center to meet its deficit targets. We are already hearing about expenditure savings amounting to Rs 1.75 trillion.

So, spending cuts are inevitable. Now, whether it will be a cut of Rs 2 trillion or Rs 2.5 trillion is debatable; however, it may be totally irrelevant for the economy.

This is because just like in FY19, the center could shift a portion of its spending on CPSEs, rather than actually cutting it.

While it will show better-reported deficit numbers, the actual spending and borrowings/deficit will be much higher than the reported data.

In any case, I don’t expect the central government to borrow more than an additional amount of Rs 600-800 billion (0.3-0.4% of GDP). Markets would be broadly comfortable with such slippage.

What are the expectations from the Budget 2020 from market perspective?

I believe that investors’ and market expectations from the Union Budget 2020-21 are muted. Not only because everyone is broadly aware of the constraints but also because major decisions can always be taken outside the Budget as well.

If the government can come out clean on its fiscal math and improve on its credibility and relevance, markets will definitely cheer that.

Do you think infrastructure could turn out to be a strong beneficiary in the upcoming Budget?
The central government accounts for only 5 percent of the total investments in the economy. While the government is focused on infrastructure and other investments, massive receipt shortfall and larger share of non-discretionary spending make it difficult to grow capex significantly year after year.

The govt struggled to meet the divestment target in FY20. What are the estimates you are factoring in for the next fiscal?

I would not be surprised if the government sets a target of more than Rs 1 trillion for disinvestment proceeds. Not only past performance is not an indicator of future performance here, but actually lower divestment proceeds in year ‘T’ increases the chances of higher proceeds in year ‘T+1’.

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