India Ratings and Research, an affiliate of ratings agency Fitch, has described putting the economy on an accelerated growth path as the "most daunting task" for Finance Minister Nirmala Sitharaman in the Union Budget 2019. In a report, India Ratings said that the finance minister will have to navigate through a myriad of challenges in the Budget 2019. Ms Sitharaman is due to present the first full-year Budget of the re-elected National Democratic Alliance (NDA) government in Parliament on July 5. The credit ratings agency also said that a limited fiscal space is available for the government to boost growth. (Also Read: Low Expectations Of Budgetary Stimulus May Subdue Equities: Experts)
The fiscal deficit has already been projected at 3.4 per cent of gross domestic product (GDP) in the Interim Budget, presented in February this year. Based on the current trend in GDP and tax-/non-tax revenue growth, India Ratings has said it believes that adhering to the target will be difficult without squeezing expenditure. (Also Read: Union Budget 2019 To Shape The Future Trend Of Equity Market, Say Experts)
It would be interesting to watch out for measures the finance minister announces in Budget 2019 to expand the tax base and resolve the tax revenue currently in disputes, the agency noted.
"Even after several simplifications/alterations, India's direct tax laws/rules are still complex and replete with various types of exemptions. The agency hopes a new direct tax code to simplify tax legislation, remove exemptions and widen the tax base would find a place in the FY20 Budget," India Ratings said in its report.
On the fiscal consolidation front, India Ratings said that the government must continue in line with the fiscal roadmap. (Also Read: Union Budget 2019: Industry Body For Lower Taxes To Incentivise Equity Investments)
"In FY19, India's general government's (both central and state) fiscal deficit at 6.9 per cent of GDP was much higher than the Fitch rated 'BBB' peer group's median of 1.9 per cent. Similarly, India's general government debt at 69.0 per cent of the GDP in FY19 was 1.84 times of the 'BBB' rated peer group's median," India Ratings said. (Also Read: Budget 2019: Tax On Capital Gains May Continue This Year, Says Report)
"Many developed economies have a debt/GDP ratio much higher than that of India. However, due to a smaller revenue base, India's debt/revenue ratio is much higher than that of other 'BBB' rated economies. This makes India highly vulnerable to growth cycles and it is an outlier even among 'BBB' category economies."
Indian Ratings has also said that the government in Budget 2019 needs to come up with a five-year roadmap on tax reforms especially for corporate tax rates. (Also Read: Budget 2019: Industry Body For Hike In Tax Exemption On Preventive Health Check-Up)
At the same time, the Budget should also address capital infusion in the public sector banks, removing the roadblocks that have creeped into the Insolvency and Bankruptcy Code process, and encouraging/incentivising banks to buy good quality assets of non-bank finance companies (NBFCs), which in turn would provide the much needed liquidity to NBFCs. (Also Read: India Budget 2019 To Shape The Future Trend Of Equity Market, Say Experts)
That will go a long way in easing the current woes of the financial sector and reviving the private corporate/non-corporate capex, India Ratings further said.
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