“Tilting towards populism, while avoiding a big bend”, the government announced the interim budget for FY20. The FM has made an effort to contain FY19 fiscal deficit @ 3.4% of GDP, while maintaining the FY20 Fiscal deficit target straight line @ 3.4% of GDP (at probably cost of CapEx expenditure). With the potential of stoking inflationary pressures, the budget also pushes Fiscal consolidation away for some time, especially when there is an increased doubt on revenue generation.
The FM has tried to address agrarian issues through a farm package (PM kisaan Samman Yojna), though the allocation pegged t INR 750bn does not disturb the fiscal maths in a big way.
The revenue targets, especially on GST collections and Disinvestment for FY20 looks quite stretched and optimistic.
As far as RBI is concerned, we believe the budget pushes back the possibility of a rate cut in the near future and expect RBI to highlight potential upside risk to inflation on account of slip in fiscal.
We believe that there would be pressure on bond yields and expect new 10 yr g-sec to trade in the range of 7.20% – 7.60% in the medium term and take further directional cues from incoming macro data”.
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