FY20 Interim Budget Win Some, Lose Some Business Economics Banking February 1, 2019 - Yes Bank
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FY20 Interim Budget
Win Some, Lose Some
Business Economics Banking
February 1, 2019Challenging macro
backdrop for FY20 Budget
Deflation in Food prices… … leading to subdued rural wage growth
8 % YoY
CPI Food and beverages
6
4
2
0
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
-2
Softness seen in domestic demand Global policy uncertainty is on the rise
30 Urban demand Rural demand Investment demand
25 (3mma, % YoY)
20
15
10
5
0
-5
-10
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Nov-18
2FY20 Interim Budget: Key
takeaways
Headline Fisc: A temporary pause in the fiscal consolidation glide path
FY19 to see a minor fiscal slippage of 0.1% of GDP to 3.4% led by GST shortfall and
provision for farm income scheme
FY20 fiscal deficit to remain unchanged at 3.4%, a deviation from the FRBM implied
milestone of 3.1%
While the quality of fiscal adjustment is slated to improve in FY19 RE over BE, the
same is expected to deteriorate on account of revenue spending led farm stimulus in
FY20 with capital expenditure bearing the brunt of adjustment
Despite two years of consecutive slippages, the government has reaffirmed its
commitment to achieve the FRBM implied milestone of 3.0% fiscal deficit in FY21
Focus
To boost consumption growth via income transfer scheme to farmers and higher
disposable income to middle class
Monetary policy
We continue to expect RBI to revert to its ‘neutral’ policy stance from ‘calibrated
tightening’ currently. Possibility of rate cuts ruled out post the fiscal slippage.
Market borrowing and implications
FY19 to see Rs 300 bn additional g-sec borrowing. FY20 net market borrowing estimate
of Rs 4.7 tn is on the higher side of consensus expectations.
We continue to expect 10Y g-sec yield at 7.50% by Mar-19. Yields to harden thereafter
towards 7.50-7.75% by Mar-20.
3FY20 Interim Budget: At a
glance
Amount in Rs trillion FY18 FY19 FY19 FY20 Change (%)
(unless specified) (1) BE (2) RE (3) BE (4) FY19 fiscal slippage by 0.1%
(3)/ (1) | (4)/ (3)
to 3.4%
Revenue Receipts 14.35 17.25 17.29 19.77 20.5 14.3
FY20 fiscal deficit pegged at
Net Tax Revenues 12.42 14.80 14.84 17.05 19.5 14.9
3.4%
Non Tax Revenues 1.92 2.45 2.45 2.72 27.2 11.2
Farmer income support to the
of which, Dividends 0.91 1.07 1.19 1.36 30.5 14.1 tune of 0.4% of GDP
Non Debt Capital Receipts 1.15 0.92 0.93 1.02 -19.5 10.0
FY20 budget also provides
Disinvestment 1.0 0.80 0.80 0.90 -20.0 12.5 relief to middle income
segment via tax sops
Total Expenditure 21.42 24.42 24.57 27.84 14.7 13.3 Disinvestment target of INR
Revenue Expenditure 18.78 21.41 21.40 24.47 13.9 14.4 800 bn to be met in FY19;
upped to INR 900 bn in FY20
Subsidies 2.24 2.95 2.99 3.34 33.3 11.7
Interest Payments 5.29 5.75 5.87 6.65 11.1 13.2 Quality of expenditure
improves in FY19, but to
Capital Expenditure 2.63 3.00 3.16 3.36 20.3 6.2 deteriorate marginally in
FY20
Fiscal Deficit 5.91 6.24 6.34 7.04 7.3 11.0 Total subsidy as % of GDP to
Memo Items (% of GDP) hold steady over FY19-20
Revenue Deficit 2.6% 2.2% 2.2% 2.2% Nominal GDP growth pegged
Fiscal Deficit 3.5% 3.3% 3.4% 3.4% at 11.5% in FY20 vs. 10.2% in
FY19 RE
Primary Deficit 0.4% 0.3% 0.2% 0.2%
4Fiscal consolidation to take a
breather in FY20
Stacking up Government’s Revenues and Expenditure as a % of GDP
Fiscal consolidation is expected to take a breather in FY20, with fiscal deficit to
GDP ratio expected to remain at 3.4% - same as FY19.
On the revenue side, upside is anticipated to be led by net tax revenues, budgeted
to increase to 8.1% of GDP compared to 7.9% in FY19. Non-tax revenues and Non-
debt capital receipts to hold steady as a % of GDP
On the expenditure side, while revenue expenditure is expected to rise (by +0.3%)
to 11.7% of GDP, capital expenditure to bear the brunt and is budgeted to ease to
1.6% of GDP (vs. 1.7% in FY19) 5Taking Stock:
Rupee earned vs. Rupee Spent
Breakdown of how every 100 Rs are budgeted to be earned and spent by Government in FY20 vs.
FY19
Outer Circle: FY20 BE
Inner Circle: FY19 RE
In FY20, contribution of GST to reduce to Rs 21 in every Rs 100 earned by the
Government
Contribution of direct taxes to rise, help Government to garner Rs 38 in every Rs
100 earned vs. Rs 35 in FY19
On the expenditure side, pattern broadly same, except for Centrally Sponsored
Schemes (CSS) to see higher outgoes in FY20
6FY20 Direct Tax: Continues
upward movement
Direct tax collections trend higher on improved tax
INR bn compliance and rise in tax payers
7.5 %
FY18 FY19RE FY20 BE Central Govt. direct tax as % of GDP FY19: 6.4%
6.5 FY20: 6.6%
Direct tax 10,019 12,000 13,800
5.5
Corporate 5,712 6,710 7,600
Income 4,307 5,290 6,200 4.5
%YoY 3.5
FY18 FY 19RE FY20 BE 2.5
Direct tax 18% 20% 15% 1.5
Corporate 18% 17% 13% 0.5
1980 1985 1990 1995 2000 2005 2010 2015 2020
Income 18% 23% 17%
Note: figures are for fiscal year (April to March); BE of FY19 and RE of FY20
Direct tax revenue increased in FY19 by 20% as per RE vs. 14% BE and 18% in FY18 as
government measures to improve tax compliance resulted in 80% growth in tax base
Moderation in income tax revenue growth in FY20 is expected due to tax relief
measures targeted primarily for the middle income group
Corporate tax revenue is expected to rise by a moderate 13% in FY20 vs. 17% in FY19
RE
7FY20 Indirect Tax Revenue:
Growth to moderate
INR bn Compensation cess Apr-Nov GST collection INR bn
FY18 FY19RE FY20 BE
Indirect tax 9,114 10,427 11,661 Unallocated IGST
GST 4,424 6,439 7,612 Goes to states
CGST
Excise 2,588 2,596 2,596
Goes to centre
Customs 1,290 1,300 1,453 IGST transferred to
states To be divided
Services 812 92 0 b/w centre &
IGST transferred to
%YoY states
centre
FY18 FY 19RE FY20 BE
SGST
Indirect tax 5.8% 14.4% 11.8%
GST _ 45.5% 18.2% 0 500 1000 1500 2000
Excise -32.2% 0.3% 0.0%
Customs -42.8% 0.8% 11.8% FY19 indirect tax collections post a shortfall
Services -68.1% _ _ of Rs 733 bn led by GST shortfall of Rs 1000
9.5 % bn vis-à-vis BE, owing to -
8.5
• Reduction in GST rates for many items
during the year
7.5 Central Govt. indirect tax as % of GDP
FY19: 5.5%
• Overhaul in compliance infrastructure
6.5
FY20: 5.6% Gross GST collections average run rate for
5.5 FYTD19 stands at Rs 959 bn; lower than
4.5 Government’s monthly target of Rs 1 tn.
For FY20, GST revenues/GDP ratio is
3.5
1980 1985 1990 1995 2000 2005 2010 2015 2020 expected to rise to 3.6% vs. 3.4% in FY19RE,
Note: figures are for fiscal year (April to March); BE of FY19 and RE of FY20 premised on 18% growth in collections 8NTR: Dividends support;
Disinvestment paces up
Non-tax revenues (NTR) gain traction Dividends continue to grow strong
3,000 Non tax revenue INRbn 1,600 Dividend receipts INRbn
PSU RBI+PSB+FI
1,400
2,000 1,200
1,000
800
1,000
600
400
0
200
FY15 FY16 FY17 FY18 FY19 RE FY20 BE
Other services Other economic services 0
Communication Dividends + Interest FY16 FY17 FY18 FY19BE FY19RE FY20BE
Disinvestment to edge up in FY20
Non-tax revenues have increased
1000 INR Bn marginally vs. BE due to additional Rs
Budget Estimate Actual
120 bn from dividends and profits
800 Dividends and profits are estimated to
rise by Rs 168 bn to Rs 1361 in FY20 due
600
to higher receipts from both PSU’s and
400
RBI
Disinvestment target of Rs 800 bn
200 likely to be met in FY19
• BE for FY20 at Rs 900bn looks
0 achievable
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
9Quality of spending improves in
FY19; to deteriorate in FY20
Quality of fiscal spending to deteriorate in FY20 …with off-budget support also seeing a
reduction
INR Bn RE FY19 BE FY20
Budget Off-budget Budget Off-budget
Allocation resources Allocation resources
Roads 686 620 720 750
Railways 531 858 646 941
Urban Infra 170 197 195 194
Petro 20 944 17 936
Telecom 43 157 59 139
Power 21 732 26 430
Quality of fiscal spending (ratio of capital to revenue expenditure) improved in FY19
over FY18, owing to overshooting of capital expenditure (by Rs 162 bn vs. BE)
For FY20, quality of fiscal spending is set to deteriorate. As a % of GDP, while
revenue expenditure is expected to increase by 0.4%, capital expenditure is expected
to ease by 0.1%.
Total capital expenditure growth on infrastructure in FY20 envisaged to moderate to
6.2% compared to a healthy double-digit growth of 20.3% in FY19 RE
Even, off-budget capex, to see reduction in some sectors such as Telecom and Power.
However, Roads and Railways remain the priority sectors for capital expenditure
10Subsidy burden to remain
unchanged, risks remain
Subsidy Breakup
Major Subsidies Growth (%)
FY20
FY17 FY18 FY19 FY19 FY20 FY19 RE/ BE/FY19
(INR bn) Actual Actual BE RE BE FY18 RE
Total 2348 2244 2955 2992 3342 33.3 11.7
(as a % of GDP) 1.53 1.31 1.58 1.59 1.59 -
Food 1102 1003 1693 1713 1842 70.8 7.5
Fertilizer 663 664 701 701 750 5.5 7.0
Urea based 474 442 450 450 502 1.8 11.5
Nutrient based 188 222 251 251 248 12.8 -1.0
Petroleum 275 245 249 248 375 1.5 50.9
LPG 187 157 204 203 330 29.6 62.6
Kerosene 89 88 46 46 45 -48.3 -1.3
Interest Subsidies 179 221 231 227 251 2.4 10.9
Others 129 111 81 103 124 -7.0 20.1
Expenditure on subsidies expected to rise by a 11.7% in FY20 driven by a broad
based increase; but lower vs. 33.3% growth in FY19 RE
However, subsidy to GDP ratio budgeted to remain unchanged at 1.6% in FY20
FY20 subsidy burden estimates appear to be realistic
However, surge in global crude oil prices remains an upside risk for petroleum
subsidies
11Macro Impact of Interim
Budget
Will the FY20 Interim Budget be inflationary?
Yes
• Incremental revenue expenditure in the form of income support scheme (Pradhan Mantri
Kisan Samman Nidhi) for small and medium farmers
•Quality of fiscal spending (ratio of capital to revenue exp) to deteriorate in FY20 over FY19
•Significant allocation for farm sector to support consumption upwards and keep pressures on
core inflation elevated
•Total Expenditure/GDP ratio of 13.3% is the highest in last 5 years
No
•Despite the fiscal slippage, Government has been able to consolidate its finances marginally
in FY19-20 compared to FY17-FY18 fiscal deficit ratio of 3.5%
•In addition, the Subsidy/GDP ratio is expected to remain same at 1.59% over FY19 and FY20
•Real growth in agriculture rural wages is currently tracking -1%YoY during Apr-Nov FY19;
FY20 Budget is likely to provide some relief
•Encouragingly, Government has over delivered on primary deficit, as ratio to GDP is
expected to ease to 0.2% in FY19 vs. 0.3% in BE
The Budget is likely to have a mild inflationary impact emanating from the ‘core’ side.
From the perspective of growth, focus on boosting consumption should support GDP
growth momentum. We don’t see lower allocation for capital spending in FY20 to stall the
ongoing investment recovery amidst a functional IBC framework. 12FRBM Act: Remains in focus
Fiscal Indicators ( as % of GDP)
FY19 FY20 FY21 FY22
Fiscal Deficit 3.4 3.4 3.0 3.0
Fiscal Deficit (FRBM Act) 3.3 3.1 3.0 3.0
Revenue Deficit 2.2 2.2 1.7 1.5
Primary Deficit 0.2 0.2 0.0 0.0
Gross Tax Revenue 11.9 12.1 12.1 12.2
Non Tax Revenue 1.3 1.3 1.3 1.3
Central Government Debt 48.9 47.3 45.4 43.4
Fiscal deficit for FY19 is revised up by 0.1% to 3.4% to undertake structural steps to
support farmers. Without such adjustments, fiscal deficit is estimated to be less than 3.3%
for FY19 and less than 3.1% for FY20
Accordingly, the government debt for FY19 has been revised up to 48.9% from the
previous estimate of 48.8%, well above the 40% target as per the revised FRBM Act
In medium term, the government expects to reduce the fiscal deficit to 3%, as prescribed
by the FRBM Act and completely eliminate the primary deficit
Overall, the focus remains on curtailing the fiscal deficit while following government
debt consolidation
In our view, fiscal slippage by 0.1% of GDP in a pre-poll budget seems reasonable given
the backdrop of structural adjustments undertaken for farmers at large. While this is
likely to provide support to consumption however the policymakers will have to strictly
adhere to the fiscal consolidation roadmap hereon.
13Funding of fiscal deficit in
FY19 and FY20
Financing of Fiscal Deficit (Rs bn)
FY18 FY19 FY19 FY20
(Actual) (BE) (RE) (BE)
Fiscal Deficit 5911 6243 6344 7040
Financed by:
External 79 -26 -49 -30
Domestic 5831 6269 6393 7070
Market Borrowings 4045 3901 4227 4231
Short-Term Borrowings 507 170 250 250
Small Savings 1026 750 1250 1300
State Provident Fund 158 170 170 180
Others 41 847 84 595
Draw-Down of Cash Balances 41 431 412 513
Reliance on market borrowing for funding the fiscal deficit is set to reduce from
68.4% in FY18 to 66.6% in FY19 and further towards 60.1% in FY20
For FY19, the government has budgeted for additional borrowing of Rs 300 bn and Rs
80 bn via g-secs and T-Bills respectively
For FY20, a significant amount of funding is expected to come via non-market sources
• While Small Savings could possibly deliver on the budgeted assumption, high
drawdown of cash balances in FY20 could be challenging if the government
were to stick to the revised FRBM path that projects FY21 fiscal deficit at 3.0%
14Where do borrowings stand?
Gross Repayment Net Buyback Switch Net Supply
Borrowing Borrowing
(Rs bn)
FY17 5820 1748 4072 597 405 3475
FY18 5880 1373 4507 416 581 4091
FY19 RE 5710 1483 4227 0 0 4227
FY20 BE 7100 2369 4731 500 0 4231
Gross and net market borrowing is budgeted at Rs 7100 bn (+24.3%) and Rs 4731 bn
(+11.9%) respectively in FY20
• Strong growth in gross borrowing in FY20 is on account of FY19 RE budget
revising lower provisioning for buybacks to zero from Rs 719 bn as per BE
Adjusted for buybacks, the net supply of g-sec is expected to broadly remain
unchanged around Rs 4.2 trillion in FY19 and FY20
• Budget makes no provision for switching of g-secs in FY19 and FY20
15What does unchanged net
supply imply for FY20?
Unchanged net supply of g-secs at Rs 4.2 trillion should ideally be positive for
sentiment as banks being the largest owner (~44% share) would demand bulk of
issuances to meet SLR requirements
• However, with excess SLR maintenance of ~7.3% vis-à-vis the long term average
of ~5%, banks incremental appetite for bonds could remain subdued
• FPIs could also go slow in increasing their exposure given the fiscal slippage
and uncertainty on inflation and upcoming general election
In this case, support from RBI would once again be crucial to clear the market (RBI
absorbed ~61% of net g-sec issuances between Apr-Jan FY19)
16Economic Themes
17Agri and Allied Sectors:
Continued focus
Incentives for Farm Sector: Augment Farmer’s Income
Tepid growth seen in wages of agri workers FY20 Announcements
PM Kisan Samman Nidhi (PM-KISAN): Rs 750 bn
Roll Out Date: 1st Dec 2018 (Rs 200 bn earmarked to be
paid in Q4 FY19)
Objective: To provide direct income support of Rs
6000/year to farmer families having cultivable land
upto 2 hectare
Farmers affected by natural calamities to get interest
subvention of 2% and prompt repayment incentive
of 3%
Krishi Sinchai Yojana: Rs 95.2 bn vs. Rs 82.5 bn in
FY19 (RE)
-Area covered FYTD19: 6.79 Lakh Ha
Total allocation for Agri sector in FY20: Rs 1296 bn
Focus on Animal Husbandry and Fisheries
FY20 Announcements
Setting up of Rashtriya Kamdhenu Aayog to upscale sustainable genetic upgradation of cow resources
Creation of a separate Department of Fisheries given its economic importance (as India accounts for 6.3% of
global production and provides livelihood to ~1.45 cr people)
Benefit of 2% interest subvention to farmers availing loan through Kisan Credit Cards. Additional 3%
interest subvention contingent of timely repayment of loan
18Rural Sector: Bridging the
rural urban divide
Creating Rural Infrastructure
FY19 Announcements Current Status
PM Gram Sadak Yojana: Rs -Actual utilization of Rs 155 bn vs. BE of Rs 190 bn in FY19
190 bn -15.8 lakh habitations out of a total of 17.84 lakh habitations
connected with pucca roads
-Total length completed: 22,281 km (FYTD19) vs. targeted length of
58,000 km
PM Awas Yojana Rural: Rs -Actual utilization of Rs 199 bn in FY19 v. BE of Rs 210 bn
190 bn - 68.4 lakh rural houses completed until Jan-19 (Target: 1 cr houses
by Mar-19)
Swatch Bharat Mission: Rs -Actual utilization of Rs 170 bn in FY19 vs. BE of Rs 178 bn
128 bn -98% rural sanitation coverage achieved
Augmenting Livelihood
FY20 Announcements Current Status
MNREGA: Allocation Rs 600 -4.67cr households have been provided employment under
bn MNREGA (Apr-Jan 19) vs. 5.12 cr households in FY18
(Government to provide more -Actual utilization of Rs 610 bn vs BE of Rs 550 bn in FY19
fund if required)
National Rural livelihood -Actual utilization of Rs 52 bn vs. BE of Rs 51.4 bn in FY19
Mission: Rs 81 bn
19Benefits for Aam Aadmi
40% increase in number of tax payers owing Timeline of changes in the taxation system
higher tax compliance since FY14 FY15 – Increase in personal tax exemption limit
from Rs 2 to Rs 2.5 lakh and investment under 80C
by Rs 50,000 (to Rs 1.5 lakh)
FY16 - Surcharge of 15% on income over Rs 1 cr
FY17 - Surcharge of 10% on income between Rs 50
lakh - Rs 1 cr and Surcharge of 15% on income over
Rs 1 cr
FY18 – Income tax rate reduced to 5% from 10% for
Rs 2.5 - 5 lakh slab
FY19 -Standard deduction of Rs 40,000 in lieu of
medical expenses and travel allowance
Measures announced in FY20 interim budget Objectives
Tax Rebate to individuals with income upto Rs 5 lakh - To increase
Standard deduction limit enhanced to Rs 50,000 disposable
incomes
Processing of IT returns in 24 hours and refunds immediately envisaged over - To simplify tax
next 2 years system
Assessments and verification of returns for scrutiny to be done electronically - To increase
transparency
Increase in TDS Threshold on interest earned on post office/bank to Rs - To ease the tax
40,000 (from Rs 10,000) burden 20Infrastructure: The growth
engine
Sector FY20 Announcement Current status
Off balance sheet: Rs 123.5 bn -India ranked 5th globally for overall installed
Renewable Energy and Electric Renewable Energy capacity. (73.35 GW)
Energy
vehicles a key part of Govt's -Cumulative renewable energy increased by 106%
vision for 2030. since 2014
Total allocation: Rs 720 bn -NHAI completed first TOT and offered 586 km of
Off balance sheet: Rs 750 bn National highways under 2nd bundle.
-Bharatmala (34,800 km)- Projects for 6,407 km road
Roads
length have been awarded till Oct-18
-Average rate of constructing highways stand at 24
kms/day vs. 27 kms/day in FY18
Operating ratio improved to 96.2% in FY19 (RE) vs.
Total allocation Rs 645 bn 98.4% in FY18
Railways - Operating ratio to improve to -No. of accidents fell to 44 from 51 in Apr-Nov FY18
95% -Renewal of 2812 kms of railway Track (Apr-Nov
FY19)
-99% Adult population registered for Aadhaar
-Digital payment via mobile grew 3.5 times to 600 mn
Digital/
Creation of 0.1 bn digital villages in Dec-18 from 168 mn in Dec-16
Telecom
in 5 years -Internet subscription rose from 233 mn Mar-14 to 491
infra
mn in Jun-18
-Monthly consumption of mobile data increased by
over 50 times in the last 5 years 21Social Inclusion: Continues to
remain in focus
Health Education Social Protection
Enhanced allocation for 25% extra seats to be PM Shram-Yogi Maandhan – Rs -
Ayushman Bharat: Rs 64 bn provided in educational 3000 pm pension for workers having
(vs. Rs 24 bn in FY19) institutions to accommodate the up to Rs 15000 monthly income
- 10 lakh patients benefitted additional 10% reservation for Enhanced Insurance Cover:
since Sep-18 poor not covered under OBC and -ESI's eligibility cover enhanced from
SC/ST reservation rules. 15,000/month to 21,000/month
Pension support:
-Min. Pension fixed at Rs 1000/month
-Amount to be paid by EPFO increased
to Rs 6 lakh from Rs 2.5 lakh in the
event of death of labour during service
Setting up of 22nd AIIMS in National Education Mission: Ceiling of payment of gratuity has
Haryana Rs 385 bn been doubled to Rs 20 lakh
-Actual utilization of Rs 323 bn National Social Assistance:
vs. BE 326 in FY19 Allocation Rs 92 bn
-Actual utilization of Rs 89 bn vs. BE
of Rs 99.7
22Thank You!
23Contacts
YES BANK Limited
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BUSINESS ECONOMICS BANKING
Name Designation Email Phone
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Vivek Kumar Senior Economist vivek.kumar1@yesbank.in (+91) 22 3372 9059
Yuvika Oberoi Economist yuvika.oberoi@yesbank.in (+91) 11 6656 9087
Radhika Piplani Economist radhika.piplani@yesbank.in (+91) 22 3372 9016
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Sanjana Shah Economist sanjana.shah@yesbank.in (+91) 22 3372 4209
Note: Data in this report has been sourced from CEIC, Bloomberg, GoI Budget Documents & Economic Survey, PIB, CGA, PPAC, IMD, RBI,
IMF, Economist, CMIE, and YES BANK Limited
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