The government has adopted a limited fiscal slippage against the demands for a big stimulus, in order to balance growth concerns without affecting the market and debt obligations. The budget pegged the Fiscal Deficit to GDP ratio at 3.5% for FY21 and 3.8% for FY20, in line with the street expectations, Gross market borrowing for next year at Rs.7.81 tn is in line with the market expectations while no extra borrowing for the current year is a big positive surprise for the market.
The budget arithmetic seems credible – gross tax revenues are assumed to grow at 12% with the assumption of 10% nominal GDP growth (reasonable!!). Tax rationalization for income along with tax cuts for corporates will be offset by growth recovery benefitting collections of GST and customs. Nonetheless, challenges on the non-tax revenue and disinvestment front could continue and could pose a risk to receipts. The real test lies in the Rs.2.1 tn worth of divestments (LIC, Air India, Concor, BPCL, etc), where any delay can blow a hole in the Budget arithmetic.