The full budget for fiscal 2019-20 presented by the Financial Minister, Nirmala Sitharaman, was largely favorable to the bond markets. Gross fiscal deficit was projected at 3.3% of GDP as compared to 3.4% projected in the interim budget. The gross and net borrowing numbers are largely unchanged from the interim budget.
The government did a fine balancing act in its budget for 2018-19. Despite revision of fiscal deficit targets upwards, the borrowing numbers look benign and this will appease bond markets that have been hit hard by weak sentiments.
Union budget 20-21 highlights the challenges to fiscal consolidation from slower real and nominal growth, which may continue for longer than the government forecasts. The modest narrowing of the deficit to 3.5% in the fiscal year 2020-21 from 3.8% in the fiscal year 2019-20, sustained weaker growth and tax cuts would make gross revenue targets difficult to achieve.
The Economic Survey 2014-15 paints a bring picture for the Indian economy in the coming years, forecasting double digit growth, falling inflation expectations and improved macro economic framework. One factor, however, could move bond markets negatively is the survey’s call for a bit of flexibility on fiscal deficit, which could increase government borrowing.
The Government has accepted the Fourteenth Finance Commission recommendation to devolve 42% of Union Government’s net taxes to States, as against 32% being followed at present, which was the recommendation of the Thirteenth Finance Commission.