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ANZ analysts note that the India government lowered the fiscal deficit target to 3.3% of GDP for FY20 (ending March 2020) from 3.4% in the interim budget.

Key Quotes

“The government aims to achieve this via a significant increase from both tax and non-tax revenues.”

“The required increase in taxes, in fact presents a significant challenge to the fiscal arithmetic. Our principal concern is that revenue projects for FY20 are based on revised estimates and not provisional actuals of the previous year. Based on the latter, the 25% required increase is stretched.”

“Except for the announcement of a higher than expected INR700bn in bank recapitalisation funds, a strong stimulus to stoke growth in the near-term is missing. Reviving credit, augmenting rural demand and continued infrastructure push remained key focus areas.”

“However, we do not see any hiccups in financing of the fiscal deficit. The intent to fund the deficit via foreign currency denominated sovereign bond issue has taken bond yields to record lows. While this is expected to further diminish the pressure on onshore liquidity, it will lead to INR overvaluation if frequently resorted to and work to the detriment of India’s manufacturing sector.”