With 2019 Polls Just Months Away, Here's What Not to Expect From Interim Budget

New Delhi: With just a few months left for the 2019 Lok Sabha elections, the government is all set to present its interim budget on February 1. Budgets in the election year are generally referred to as interim or vote-on-account and according to protocol, the ruling government is only supposed to present the expenditure bills for the financial year.

Propriety demands that not too many changes should be made in a vote-on-account or interim budget. This is further stemmed by the fact that the vote-on-account on February 1 will precede the unveiling of the Direct Tax code report on February 28. Tinkering with the tax rates or tax provisions before the release of the report will lead to avoidable controversies.

While no political party would roll back some reliefs, such as raising exemption limit for individuals under the Income Tax Act, especially right before the elections, relief measures for the rural population can be expected. Though the speech may include a vision statement for the next three-five years, its implementation will most likely be postponed to the new government.

Shortfall in GST collections, telecom sector revenues, divestment revenues and some shortfall in direct tax receipts could upset the targeted budgeted revenues. This might happen at a time when the expenditure may overshoot budgeted numbers. While some shortfall may be recouped from higher RBI dividends, a minor overshooting of fiscal deficit is likely unless severe expenditure cuts are undertaken.

At least five states may go to polls along with the Lok Sabha Elections in April-May 2019. With the outcome of the recent assembly elections, rural distress has emerged as a key pressure point. Dealing with agriculture stress and generation of employment could be key focus areas in the budget speech. While universal basic income (UBI) transfer is one of the options, it needs a lot of study/analysis in terms of total spend required, the current schemes that it will replace and the mode of distribution.

As per the current available data (until November 2018), India’s fiscal deficit has already breached the budgeted target and touched 114.8 per cent of budgeted estimates vs 112 per cent last year.

Capital markets may expect little from the vote-on-account though the speech may give media and analysts enough to debate upon. The markets would be driven more by the macro developments across the globe hinting at the pace of slowdown, Q3 corporate results outcome and political noises, arrangements leading to shifting expectations about the post-poll arithmetic.