Budget to focus on infra not sops: Icra

New Delhi: Union Budget is likely to focus on higher spending on infrastructure and social security to stimulate demand rather than slashing taxes as in the current situation as revenue collections are yet to stabilise after the switch over to GST, Icra said.

“We expect this Budget to utilise fiscal space to enhance spending rather than reduce direct taxes,” said Icra.

Last Budget, the FRBM review committee (N.K. Singh Committee) report had indicated a fiscal deficit target of 3 per cent of GDP for FY19.

“Union Budget may increase the allocations for social infrastructure and social security spending, such as NREGA, food subsidy, insurance schemes and welfare pensions. We also expect enhanced outlays for rural and urban infrastructure, such as affordable housing, roads, railways and ports. Moreover, budgetary allocations for capital spending are likely to be supplemented by extra-budgetary sources of funds such as institutional finance and market borrowings of the CPSEs, as well as the NIIF,” said Icra.

It said that after the implementation of GST, indirect tax rates on few items like petroleum products remain under the control of the Centre, as the GST Council would decide on changes in GST rates.  

It pointed out that average price of the Indian basket of crude oil is likely to rise to $65-70 per barrel in FY19 from $56-59 a barrel in FY18.

This would generate pressure on the government to reduce excise duties to temper inflation, while simultaneously pushing up the fuel subsidy by up to '88-93 billion relative to the Budget Estimate for FY18, the agency said.

It said that in terms of non-tax revenues from the telecom sector, there has been no announcement so far of spectrum auctions to be held in FY19.

It also said that dividends from CPSEs and PSU banks in FY19 would take a cue from profitability in FY18, which is likely to be subdued for the latter.  “Given the expectation that non-financial PSUs would step up dividends in FY18, to contain a shortfall in the total revenues of the Centre relative to the FY18 BE, the pace of growth the former is likely to be feeble in FY19,” it said.

Moreover, policy interventions can be undertaken at any time, and need not be clubbed, it added.