When the finance minister presents the Union Budget in Parliament, he reveals the state of government finances. The government releases a bunch of documents. Stock market investors and analysts jump quickly to the estimates for the next financial year. For ordinary souls, it is about what gets cheaper and expensive. However, this year it would be different. The implementation of the goods and services tax or GST means that the decision to make things cheaper and expensive is no longer with the government. It is the GST Council that takes that call. It just announces changes in GST rates for about 60 items.
The speech
A wealth of information is available in the finance minister’s speech. The text of the speech is released as soon as the finance minister presents it in the Lok Sabha. It is a good idea to read up the speech to get an overview of the state of the economy. It is the simplest version of the bunch of documents that the government uploads on the finance ministry website. If you are a stock market investor or invest in equities through mutual funds, it may be a good idea to look up the last part of the speech where the finance minister unveils estimates for the year ahead. This is because today’s stock prices are a reflection of tomorrow’s profits. If you are watching the speech live or reading it later and analysing why the stock market reacted the way it did, it is mostly because the government estimates for the next year have either fallen short of expectations or exceeded them.
Inside documents
For quick reading, there are highlights and executive summaries in every chapter. If you want to quickly run through the Budget, you can look up for something called ‘Budget at a Glance’. This is a compact version of the budget and something that can come in handy for reference. The data on the state of the government finances is published in a document called Annual Financial Statement. This is the source of information for most of the press to pick up the typical infographic. ‘Rupee comes from and Rupee goes to’ is in every newspaper the next day.
The next year
It is the section called ‘Fiscal policy strategy statement’ that receives the maximum attention from those associated with financial markets. It shows the intention of the government to be ‘fiscally prudent’ or ‘fiscally loose’. Most analysts expect the government not to exceed the fiscal deficit beyond what is already disclosed. “We expect the government to project an overall fiscal deficit of Rs 5,90,000 crore in FY19, an increase of Rs 44,000 crore over FY18 budget estimate,” adds the Kotak Securities note. An analyst at Motilal Oswal Securities, another large stockbroking company, expects the government to revise the fiscal deficit target to 3.4 per cent of GDP for 2017-18 (higher than 3.2 per cent estimated earlier) and to 3.2 per cent of GDP for 2018-19 (higher than 3 per cent set last year). As an investor, do watch out for numbers mentioned here. If you see the overall fiscal deficit higher than this, the stock market will react negatively. If it is below these numbers, it will react positively.
WHAT TO LOOK FOR For a swift reading of the budget documents, there are highlights and executive summaries in every chapter. If you want to quickly run through the Budget, you can look up for something called ‘Budget at a Glance’. This is a compact version of the budget and something that can come in handy for reference
Government expenditure
The revival in the economy really depends on the allocation of the money by the government for the capital expenditure. This data is available in the expenditure/receipts document. All pundits believe that the government has no fiscal headroom to increase the fiscal deficit significantly and enhance expenditure. This really means the salaried cannot expect any tax breaks or the stock market investors cannot expect any abolition of taxes on wealth.
The only area that would get attention would be the rural sector. In such a situation, the government could move money from one accounting head to another. “We expect allocation to rural welfare schemes to be hiked by 25 per cent in 2018-19. The industry is expecting appropriate policies and allocations to ensure good prices for farmers’ crops,” says an analyst at Kotak Securities, a stockbroking firm, in a note.
“There has been considerable vocalisation of farmer distress over the past few years, highlighting the importance of interventions to reduce the risks faced by the agricultural sector,” said another note from ICRA, a credit rating agency. The allocation to rural welfare is likely to jump to Rs 1,31,000 crore from Rs 1,05,000 crore in 2017-18. (The writer is Publisher and Founder at Simplus Information Services Pvt Ltd)
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