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FM pegs FY19 fiscal deficit at 3.4%, rolls out farm income scheme in interim Budget

Fitch Ratings has warned that populist spending in Budget would aggravate fiscal pressures.|
Updated: Feb 01, 2019, 12.52 PM IST
NEW DELHI: Stock indices climbed on Friday as investors judged populists measures announced by Finance Minister Piyush Goyal were not overly populists. Goyal has proposed an assured income support scheme for farmers that will cost Rs 75,000 crore per year. The first installment of Rs 2,000 crore will soon be given to the farmers , Goyal said. He expects the scheme to benefit 12 crore families .

Economist Swanathana Iyer said the farmer income support scheme looks modest. “It is less than what’s already operational in Odissa and Telangana, The scheme is fiscally difficult, but manageable,” Iyer said.

Goyal proposed to allocate Rs 60,000 crore under MNREGA scheme. For low-income families, the FM proposed a mega pension plan called Pradhan Mantri Shram Yogi Mandhana for workers earning below Rs 15,000 per month. Goyal said the government will give Rs 3,000 per month to workers under the new PM pension plan.
MSME units to will get 2 per cent interest subvention on loan of 1 crore, Goyal said.

He proposed captal outlay for railways at Rs 64,587 crore, and fixed defence outlay at Rs 3,00,000 crore. Goyal said that his government aims to provide house to every family by 2030. Auto stocks were in focus after he expected India to lead the way in transportations via electric vehicles.

"Long term focus on electric cars with continued growth of road infrastructure, indicates some of the key policy developments expected in this area. Focus and investment in the fields of biofuel and renewable energy would not only reduce dependence on conventional and scarce fuel sources but also address global environmental concerns," said Niranjan Govindekar, Partner/ Tax & Regulatory Services, BDO in India.

Goyal said his governement wants GST burden on home buyers to come down.

The government announced assured income for farmers. PM Kisan Yojana to provide small farmers (owning up to 2 hectares) to get Rs 6,000 direct income support annually. This will be transferred in three equal installments, funded by the government. This will help 12 crore poor farmers.

Goyal also proposed to spend Rs 75,000 crore per year on farmer support. Out of this, 20,000 crore will be spent in FY19 itself.

FM said the fiscal deficit for FY19 was seen at 3.4 per cent of the GDP. This was against a target of 3.3 per cent. He proposed Rs 60,000 crore to be set aside for MGNREGA in financial year 2020.


  • Inflation under Modi govt lower than any other govt
  • Contained double-digit inflation & restored fiscal balance
  • 2018-19 revised fiscal deficit target at 3.4%
  • Current account deficit to be contained to 2.5%

  • FY19 CAD seen at 2.5 per cent of GDP
  • Most FDI came through the automatic route FM
  • Rs 60,000 crore being allocated for MNREGA in FY20
  • Govt to spend Rs 19,000 crore in FY20 on rural roads scheme.
  • Proposes assured income to small farmers
  • Rs 75,000 crore per year to be spent on farmer support.

The FM also said that his government has managed to contain fiscal deficit despite raising states' tax share.

“We have reversed the policy paralysis. We have been able to restore the image of India,” Goyal said at the start of his Budget speech. We are moving towards realising ‘New India’ by 2022, he added.

Analysts had largely anticipated limited room for big bang announcements, unless fiscal prudence was sacrificed, as the government is short on revenue collections. The government is also lagging behind its FY19 disinvestment target of Rs 80,000 crore by a mile (has raised Rs 35,100 crore from asset sale so far).

“This Budget is a far more important event for the bond market than stock market. I really cannot see how an Interim Budget just before an election can move the stock market. But the bond market is at a sensitive juncture. I think the Finance Minister would have called up the US Federal Reserve to say a ‘thank you’ for the Fed policy earlier this week for calming down the bond market,” said Saurabh Mukherjea, Founder, Marcellus Investment Managers.

Rating agency Fitch on Wednesday warned that populist spending would aggravate fiscal pressures, which are already building up due to revenue shortfalls so far in FY19. It, however, expected the Modi government to meet its fiscal deficit target of 3.3 per cent of GDP for FY19, by deferring capital expenditure and postponing bill payments until after March.

Porinju Veliyath, founder and the CEO of Equity Intelligence, expects the Interim Budget to provide some trigger and take care of the ‘hopelessness’ or extreme fear prevailing in the domestic stock market.

“I have never seen hopelessness like this in my time of two, three decades. Even as Nifty and Sensex are near their highs and reasonably outperforming global markets this last one year, the average investor in India has shown some kind of hopelessness, which is very bad,” he told ETNOW in an interview.

Goyal also looked set to tweak income-tax rates. Analysts said any major tinkering with the tax rates or provisions before the release of a report on Direct Tax Code scheduled for February 28 would have led to avoidable controversies for the government.

Recent opinion polls by India Today-Karvy and ABP-C-Voter suggested the NDA may to get 230-240 seats in the forthcoming elections, short of the 272 seats needed for an absolute majority. The gap between the NDA and UPA has become the closest since the 2014 elections.
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