Please refer to important disclosures at the end of this report
Budget 2019 - 20 Review
Government sticks to fiscal deficit target for FY2020
The Government stuck to it’s fiscal deficit target for FY2020 despite a significant
shortfall in revenues collections for FY19. Gross tax revenues for FY19 fell way
short of expectations at ` 20.8 lakh cr. as compared of revised target of ` 22.5
lakh cr. As a result net tax revenue came in short at ` 13.17 lakh cr. as compared
to revised estimates of ` 14.84 lakh cr.
The Government stuck to the interim budget fiscal deficit figure of ` 7.03 lakh cr.
for FY2020 in the final budget, though relying more on non tax revenues and
disinvestment proceeds in order to make up for the shortfall in tax revenues. While
the fiscal deficit for FY2020 in absolute numbers was maintained at ` 7.03 lakh cr.
upward revisions in GDP numbers for FY2020 resulted in the fiscal deficit falling to
3.3% against 3.4% of GDP as projected in the interim budget.
The NBFC sector had also been going through a crisis post the collapse of IL&FS
and was unable to extend credit. The Government has announced a slew of policy
measures for the NBFC sector in order to address the liquidity issues faced by the
sector, including a one time six months partial credit guarantee given to banks to
buy pooled asset of NBFCs. PSU bank recapitalization of ` 70,000 cr. would also
provide growth capital to the banking sector.
Higher Government spending to stimulate growth in FY2020
Given the slowdown in growth post the IL&FS crisis there was a significant
slowdown in tax collection in FY19. It was largely expected by the markets that the
Government would resort to cut back in expenditure in FY2020 due to lower tax
collections. However given the increased social outlay in FY20 and thrust on rural
economy it was evident that there was much that the Government could do to cut
back revenue expenditure.
Therefore in a way it is not surprising that Government maintained expenditure in
line with the interim budget estimates of ` 27.9 lakh Cr. which represents a growth
of 20.5% over FY2019. Revenue expenditure is budgeted to grow 21.9% to ` 24.5
lakh cr. while capital expenditure is budgeted to grow at 11.8% to ` 3.4 lakh cr.
which is again in line with the interim budget. In order to budget for the higher
spending the Government has resorted to hikes in both direct as well as indirect
On the direct tax front surcharge for individuals earning between ` 2 - 5 cr. has
been proposed increased from 15% to 25%. Similarly for individuals earning
above ` 5 cr. surcharge has been proposed to be increased from 15% to 37%.
This is expected to augment personal income tax collection which had fallen
significantly short of estimates in FY19.
On the indirect tax front the Government has also hiked taxes on petrol and diesel
which is by ` 2 each and also increased import duties on many commodities.
These measures are expected boost indirect tax collections given sluggish growth in
Fiscal deficit for FY2019 at 3.4%, while
fiscal deficit for FY2020 was revised
down to 3.3%.
Various policy measures announced to
address liquidity issues faced by the
Government trying to stimulate the
economy by significant increase in
expenditure by 20.5% in FY2020.
Surcharge on Income tax to be hiked
significantly for individuals in highest