“Do Not Expect Much, Govt to Present ‘Run-of-The-Mill’ Budget”

Finance Minister Arun Jaitley will present this year’s Budget on 29 February.

The Government is likely to present a “run-of-the-mill” budget with a fiscal slippage to 3.7 percent of the GDP in the next fiscal from an earlier target of 3.5 per cent, a Nomura report says.

• The government is likely to meet its fiscal deficit target of 3.9 percent of GDP in the current FY.
  
• In 2016-17, slip to 3.7 per cent as against an earlier target of 3.5 percent.
  
• Increase in wages, pensions due to 7th Pay Commission and OROP reasons for fiscal deficit slippage.
  
• RBI expected to deliver 25 bps repo rate cut in April.
  

According to the Japanese financial services major, the government is likely to meet its fiscal deficit target of 3.9 percent of GDP in the current financial year, but in 2016-17 it might slip to 3.7 percent as against an earlier target of 3.5 percent.

The increase in the wages and pensions burden owing to the Seventh Pay Commission and the One Rank One Pension scheme will be the main reasons for the slippage, it said.

Finance Minister Arun Jaitley will present the Budget 2016-17 on February 29 outlining the deficit projection for the fiscal.

What Will RBI Do?

In the Budget for 2015-16, Jaitley had stretched the fiscal deficit target to 3.9 percent from the earlier 3.6 percent to address growth concerns. As per the road-map, deficit is to be brought down to 3.5 percent of GDP in 2016-17, from 3.9 percent in 2015-16.

International rating agencies have threatened to downgrade the country’s sovereign rating if the government neglects fiscal math.

Overall, we think the budget will be a tightrope walk. We do not expect a ‘gamechanger’, but rather a ‘run-of-the-mill’ budget: the research note.

On the Reserve Bank’s monetary policy stance, Nomura said that despite the fiscal slippage, the apex bank is expected to deliver a 25 bps repo rate cut at its April policy meeting.

Meanwhile, RBI governor Raghuram Rajan on 2 February left the key interest rate unchanged citing inflation risks and growth concerns, while pegging further easing of monetary policy on government’s budget proposals.