The Parliament of India endorsed the interim budget for the Fiscal Year (FY) 2019-20. The interim budget is the sixth and final budget of Modi government. The total budget size for the FY 2019-20 is INR 27.84 trillion (USD 390 billion).
This interim budget is pivotal for the ruling party to rekindle and renew the trust among countrymen and secure the second tenure. This budget is termed as a pro-growth, pro-farmer and expected to augment the purchasing power of the middle-class family.
According to the International Monetary Fund (IMF), “India’s GDP will grow at 7.5% in FY 2019-20.” The government of India has also projected similar GDP growth rate for the FY 2019-20. India is expected to become a USD 5 trillion economy in five years which could grow to USD 10 trillion in period of a eight years.
The table below showcases the summary of the Interim Budget 2019-20.
¹ Excluding receipts under Market Stabilisation Scheme
² Includes drawdown of Cash Balance
- Individual items in this table may not sum up to the totals due to rounding off
- Figures in parenthesis are as a percentage of GDP
Source: Union Budget 2019-20
Interim Budget 2019-20 unveiled a total expenditure of INR 27.84 trillion (USD 390 billion); the corresponding figure was INR 24.57 trillion (USD 344 billion) in FY 2018-19. The total expenditure rose by 13 percent i.e. INR 3.26 trillion (USD 45.88 billion). The total expenditure increased because of the additional support to the agricultural sector, interest payments, and internal security.
If we analyse the five years trend, the Government of India (GoI) has missed the income targets. GoI has estimated INR 19.8 trillion (USD 277 billion) (increased by around 15%) as revenue receipts for the FY 2019-20. Modi government has a strong commitment to substantially boost investment in agriculture, social sector, education, and health. The interim budget 2019-20 has allocated INR 3.36 trillion (USD 47.19 billion) for capital expenditure. In particular, capital expenditure on railways, roads, and ports received a significant rise of 8%.
Modi government missed its fiscal deficit target for the second consecutive year. Fiscal deficit (in FY 2018-19) stood at 3.4% of GDP against the target of 3.3% of GDP. Lower than projected Goods and Service Tax (GST) collections and sluggish disinvestment process are primarily cited to be the main reasons for failure to achieve the fiscal deficit target.
Major changes in the interim budget includes:
There has been macro-economic stability mainly because of structural reforms (introduction of Goods and Service Tax (GST), Banking Reforms, Insolvency Code), fiscal discipline, efficient delivery of services and financial inclusion. Current Account Deficit is likely to be 2.5 percent of GDP in FY 2019-20. Inflation target has been fixed to 4 percent with tolerance level of (+/-) 2 percent. India still faces macro-economic challenges because of rising trade tensions, geo-political uncertainties, rising oil prices, unstable exchange rates and financial health of the banking sector.
Grants to Nepal and other countries:
The interim budget has proposed an aid of INR 7 billion (USD 98.3 million) to Nepal for FY 2019-20. The proposed aid is approximately INR 500 million (USD 7 million) less than revised budget estimates. The government of India has allocated a total of INR 68.94 billion (USD 968.30 million) in grants and INR 6.75 billion (USD 94.88 million) in loans to foreign governments. Apart from Nepal, the Modi- led government has proposed reducing grants to Afghanistan, Sri Lanka, Maldives, and other developing countries. Bhutan will receive the highest aid among the SAARC countries.
Massive improvement in Ease of Doing Business Report:
India is rising as a crucial player in the world economy as displayed in World Bank’s Ease of Doing Business 2019 Report. India’s ranking improved by 23 positions to 77th rank in 2018. Some of the economic reforms undertaken might further improve the performance in terms of ease of doing business.
Interim budget 2019-20 seems to be in favour of farmers, middle class tax payers, rural India, workers, real estate and auto makers whereas bond holders, farm labourers (who don’t own land) and defence sector might face a difficult time.
At last, all bogs down on the implementation capability and the performance of the stakeholders to achieve the targets set in the Interim Budget 2019-20. If India can achieve set targets and maintain current economic growth rate, it’s feasible that India may possibly become USD 5 trillion economy within a period of five years.
 Conversion rate 1USD=INR 71.38