Modi Woos Indian Voters With $13 Billion In Relief Before Polls

The budget was Modi's last attempt at reversing fortunes after his Bharatiya Janata Party lost control of three key states in regional elections last month.


Indian Prime Minister Narendra Modi made a populist push in his final budget before elections, cutting taxes for middle-class voters and giving cash handouts to farmers.

The government will allocate 750 billion-rupee ($10.6 billion) a year for the cash plan for about 120 million farmers and give taxpayers 185 billion rupees of relief in the year to March 2020, Finance Minister Piyush Goyal said in his budget speech in New Delhi on Friday.

In the process, the government will widen its fiscal deficit targets for the current financial year and next to 3.4 percent of gross domestic product and borrow more. Bonds and the rupee fell on news of the debt plans, while the tax cuts helped to buoy stocks.

“Ongoing slippage from the government’s budgeted fiscal deficit targets over the past two years, and our expectation that the government will face challenges meeting its target again this coming fiscal year does not bode well for medium term fiscal consolidation,” said Gene Fang, an associate managing director at Moody’s Investors Service. “We view this continued slippage as credit negative for the sovereign.”

The government will give 6,000 rupees a year to about 120 million small farmers, said Goyal, who stepped in as finance minister last week after Arun Jaitley went on medical leave. Individuals with an annual income of 500,000 rupees or less will be exempt from tax, he said.

“India is solidly back on track and marching towards growth and prosperity,” the minister said. “We have prepared the foundation for sustainable growth, progress and better quality of life for all our people.”

The government will borrow a record 7.1 trillion rupees in the year beginning April 1, compared with 5.7 trillion rupees in the current fiscal year. Yields on the most-traded 2028 bonds rose 12 basis points to 7.61 percent after Goyal concluded his speech.

The budget — a 28.7 trillion-rupee spending plan — was Modi’s last attempt at reversing fortunes after his Bharatiya Janata Party lost control of three key states in regional elections last month. The government also boosted allocations to rural infrastructure and employment programs.

“The focus of the budget is on the real estate sector, rural economy and consumption,” Keki Mistry, chief executive officer of Housing Development Finance Corp. said in an interview with BloombergQuint TV. “At the end of the day it benefits the entire economy,” because India is a domestic-focused economy, he said.

To make up for some of the revenue shortfall in the current financial year, Goyal budgeted higher dividends from the central bank and state-owned lenders. He penciled in 829.1 billion rupees as dividends from the Reserve Bank of India and the state-run lenders next year, up 12 percent.

While inflation at an 18-month low, weakening consumer demand and mounting global risks would have given Shaktikanta Das, the new RBI governor, an opportunity to support the economy through interest rate cuts, the expansionary budget puts him in a spot.

“We expect the Reserve Bank of India to view the budget as inflationary and flag this as an upside risk to inflation,” said Sonal Varma, chief India economist at Nomura Holdings Inc. in Singapore. “The expansionary fiscal impulse, at the margin, negates the need for the Reserve Bank of India to consider monetary easing at this stage.”

The central bank’s the Monetary Policy Committee will review rates next week, with the decision due Feb. 7.

Other key details of the budget:

–Total subsidies seen at 2.97 trillion rupees in FY20

–Defense spending allocation at 3 trillion rupees

–Railways gets 645.8 billion rupees for capital expenditure

–Income from asset sales seen at 900 billion rupees in FY20

–Dividend income from central bank, other banks seen at 829 billion rupees in FY20

–India poised to become $5 trillion economy in next 5 years

–Exempts notional rent payable on a second house owned by families

–Extends by 2 years, the exemption of notional levy on unsold properties

–With assistance from Bloomberg’s Manish Modi, Archana Chaudhary, Anindya Upadhyay, Vrishti Beniwal, Anirban Nag, Debjit Chakraborty, Rajesh Kumar Singh, Kartik Goyal, Subhadip Sircar and Subramaniam Sharma.

(c) 2019, Bloomberg

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