Sunday, February 10, 2019

A BUDGET ...WITH PAIN STORED IN FY-20

When politics become blind we get Referendum, Austerity and global financial crisis. India is just on the way of making a deep hole in its own pocket.  It's not about the election results or who will form the government. These have nothing to do with the current and recent Budget which has been tabled. The revenue projections for FY-20 are just speculation bets and these bets will cost corporate India and the economy in the long run. Political budgets have only created the Global financial crisis type of results which are too big to fail. GDP growth is a far fetched thing to worry about, post budget. I am more worried about from where and on which cost the funds will come for FY-20.

My article will give a small picture to the common people where they need to identify the risk and how they should plan their budgets for FY-20. We all should be cautious before betting high. This article is a small step towards the same.

The government has set a rather ambitious revenue target for the next fiscal. The total revenue (tax, non-tax and non-debt capital receipts) has been estimated to grow 14.5 %to Rs 19.77 lakh crore from the revised estimate of Rs 17.29 lakh crore for the current year.

This includes 15 %growth in tax revenue (Rs 17.05 lakh crore) and 11 %in non-tax revenue (Rs 2.72 lakh crore). The government also expects a 12.5 %rise in income from disinvestments to Rs 90,000 crore.

GST rates are coming down from the slab of 285 to 18 to 5% bucket; disinvestments currently are struggling at Rs.36000 cr against the bet of Rs 80000cr and FY-20 have been projected of Rs.90000 which is always dependent on market and valuations. We are betting more consumption and hence we are taking the GST so aggressively.

Among all these, if there is less rainfall impacting the crop season then inflation will shoot hence at that time the economy will need more support. From where does that will come, well simply more borrowing. More borrowing means more fiscal impact and vice versa on bonds and currency.

Whatever relaxation in various segments have been provided as a source of income for the government hence those leeways will cost the exchequer and hence financing the budget will be difficult. This also projects how much borrowings will stretch beyond the projected number for FY-20.  This shortfall will have a much more in-depth impact which is not properly calculated.

Debt market and bond papers will be under pressure and as government expenditure towards the economy is less for FY-20 I find corporate to tap the bond market and that’s another risky zone.
Fiscal deficit related discussion may not be understood by common people but for them, it is important to understand that they will face tough times in the economy.

 Debt investments should be avoided and Arbitrage funds should be kept in a portfolio. One will witness extensive volatile rides and moreover, interest rates hikes in the coming monetary policy cannot be avoided when a country will have a shortfall in revenue impacting fiscal condition.
The currency will be under pressure when revenue shortfall will happen.

The borrowing of FY-20 is also very aggressive which already now projects according to me that currency and fiscal will condition will keep under pressure. Gross borrowing in 2019/20 is estimated to grow 33.1 %compared to -9.3 %in the current year. The net market borrowing is estimated to grow 12 %in FY20 compared to a drop of 6.2 %in the current financial year.  This quantum jump is enough to create pains for Bondholders, currency and markets.

 These borrowings will become painful if there are any global crisis or Trade war type threats which will get things difficult for Indian corporate. Interest rates will increase in the due course as the fiscal condition becomes difficult to manage. The recent interest rate cuts down is a significant threat for the economy and the most interesting part will be to watch out how much banks rolls and how much corporate takes it. During these election times, I find it that only a fool will take on the Loan books.

The government is betting on the RBI dividend. Well, this dividend can be utilized for the investments within the economy rather filling up the pocket of the government. The government has revised upwards the likely dividends from the RBI by almost Rs 20,000 crore, or 35 percent, to Rs 74,000 crore.

  If the trade was continues and impacts more than how corporate revenue will increase and how the government will make it's earnings from taxes. Hence government investments will be highly required to save from these tough times. Speculation will not only prepare the recipe for Indian economic problems but also the crude and trade followed with government investments will make the recipe more unique for any government to solve.


1 comments:

dr.amandeep singh

An insightful article. can I request you to kindly share some sources where you got the information from.? I want to check the loans on India and any payments for the loans done (if any) or not.

Will be waiting for your kind reply.

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