India: Budget in charts: Fiscal targets are questionable

  • A lower-than-expected headline fiscal deficit is surprising, especially as the revenue targets appear overly optimistic and welfare spending has been significantly increased.
  • Equity investors sold off after the budget partly owing to higher proposed taxes for foreign portfolio investors, but bond yields fell to a two-year low following the government’s plan to issue India’s first sovereign bond overseas.
  • A record disinvestment aim will depend heavily on Air India’s privatization.
  • The budget is also relying on a larger RBI dividend even as the exit of another top central banker raises fresh worries about the RBI’s independence.
  • Another policy rate cut is likely in August, which will lower the repo rate by a cumulative 100 bps in 2019.

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