Budget to boost agri sector but slips on fiscal roadmap: Ind-Ra

12/02/2018 15:23

India Ratings and Research (Ind-Ra) has said that a slew of measures announced in the FY19 budget to address the woes of agricultural sector is a step in the right direction. Besides agriculture, the other area where the FY19 budget focused is physical infrastructure, especially transport. However, the outlay on health and education witnessed only marginal increase despite the announcement of an ambitious health care programme.

Under this healthcare scheme, the proposal is to provide health insurance cover of INR0.5 million to 100 million vulnerable Indian families. Given that the government expenditure on health has hardly increased in the FY19 budget, it is still not clear as to how it will be funded and rolled out, said the rating agency.

As FY18 revised estimate shows fiscal slippage, a new roadmap has been announced for the fiscal consolidation. The revised total expenditure/GDP ratio at 13.2 per cent for FY18 is higher than the budgeted 12.7 per cent. Disaggregate data suggests that the higher expenditure was mainly due to a higher revenue expenditure. This shows up in the revised revenue deficit number which shot up to 2.6 per cent of GDP as against the budgeted 1.9 per cent of GDP in FY18. This has led to deterioration in the quality of deficit, measured as percentage of revenue deficit in fiscal deficit. Quality of fiscal deficit, which had improved to 59.1 per cent in FY17 from 71.6 per cent in FY15, again deteriorated to 73.8 per cent in FY18 and it has been budgeted at 66.6 per cent for FY19.

Ind-Ra notes that actually the fiscal deficit would have been even higher than the revised estimate of 3.5 per cent of GDP but for the compression carried out in the capital expenditure during FY18. The revised capital expenditure/GDP ratio came in at 1.63 per cent as compared to the budgeted 1.84 per cent for FY18. This is certainly not a good news for those who were pinning hopes on the stepped up government capex to not only expand the productive capacity but also revive the private corporate investment cycle in the Indian economy.