India cuts taxes, widens budget deficit target to spur economy

Bloomberg

India’s finance minister slashed taxes for individuals and widened budget deficit targets for the current and next fiscal years to help spur a slowing economy.
The government will miss its deficit goals for a third year, pushing the shortfall to 3.8% of gross domestic product from a planned 3.3% in the year ending March, finance minister Nirmala Sitharaman said in parliament in New Delhi on Saturday. The deficit target for the coming fiscal year starting April 1 was widened to 3.5%.
Personal income tax rates for individuals were lowered as part of a goal to lift consumption in an economy that’s set to grow 5% this fiscal year, the weakest pace in more than a decade.
“This is a budget to boost incomes and enhance purchasing power,” Sitharaman said at the beginning of a speech that lasted more than two and a half hours.
Tax cuts for individuals, outlined below, will cost the government 400 billion rupees ($5.6 billion) in revenue, she said.
The minister’s top adviser on Friday (January 31) urged her to relax the deficit goal for the current year, saying reviving economic growth was an “urgent priority.” The adviser’s Economic Survey, a report that Sitharaman presented to lawmakers, estimates growth will rebound to 6%-6.5% in the year starting April.
Sitharaman used a provision in fiscal laws to enable the government to breach a mandated goal to bring the deficit down to 3% of GDP by the year ending in March 2021.
Economists were muted in their reaction, saying the steps announced won’t be a sufficient boost for the economy.
“Overall, we see the budget as largely neutral for short-term growth,” said Sonal Varma, chief economist for India and Asia ex-Japan at Nomura Holdings Inc in Singapore.
The deficit will be funded by a record market borrowing of 7.8 trillion rupees in the
coming year. The government also plans to give foreign investors greater access to the nation’s debt, a move seen as a precursor to getting its securities included in global bond
indexes.
Stocks Slump
India’s benchmark S&P BSE Sensex stocks index extended its decline to as much as 1.9% in Mumbai on Saturday after Sitharaman proposed levying a dividend distribution tax on investors instead of companies, and announced abolishing some tax exemptions. The bonds and currency markets were shut.
“It is not a full-frontal fiscal stimulus that the markets were hoping for,” said Rini Sen, an economist at Australia & New Zealand Banking Group Ltd in Bengaluru.
Moody’s Investors Service said the budget highlights the challenges to fiscal consolidation. India’s government debt is already “significantly higher” than the average for its Baa-rated peers, said Gene Fang, associate managing director of sovereign risk.

India’s developers fall most since 2016
Bloomberg

Shares of Indian real estate companies fell after the government failed to offer any stimulus measures to the sector reeling under a cash crunch.
The S&P BSE Realty index fell 7.8% on Saturday in Mumbai, the biggest drop since November 2016. While firms had been seeking steps to encourage purchases of homes and make it cheaper to raise money, India’s finance minister Nirmala Sitharaman only extended existing benefits for so-called affordable housing.
“One doesn’t see any major relief in the liquidity issue, which is a major challenge for the economy in general and real estate in particular,” said Niranjan Hiranandani, president of the National Real Estate Development Council. Growth of home sales in India’s seven top cities slowed to 5% in 2019 from 17.6% a year earlier, according to Anarock Property Consultants.