By Gene Fang

Jul 5 (IANS): In todays budget, Indias government announced a lower fiscal deficit target for fiscal 2020, while maintaining its support for growth and incomes. Achieving these competing goals will be very challenging. We expect the economy to grow relatively slowly, despite the governments income support measures.

In addition to funding an expansion of support for farmers, a new pension scheme and relief for small taxpayers, as previously announced, the latest budget includes a Rs 700 billion recapitalisation of state-owned banks. This will support growth by encouraging the flow of credit to the economy, although simultaneously adding to government debt.

The government is aiming to lower the Central government deficit to 3.3 per cent of GDP in fiscal 2019, from 3.4 per cent in fiscal 2018. To achieve this goal, it is relying on one-off disinvestment income, as well as higher taxes on the rich, and increased excise duties on petrol, diesel, precious metals and tobacco products.

There's a risk that India could miss its deficit target for fiscal 2019 if income from tax revenue underperforms projections, as it did last year. More generally, the headline deficit may be achieved but through reliance on one-off revenue such as disinvestments and transfers from the central bank, and off-budget spending.