Budget 2019 expectations: SBI demands fiscal consolidation from Finance Minister Nirmala Sitharaman

The State Bank of India (SBI) has asked Finance Minister Nirmala Sitharaman to give reasonable fiscal deficit assumptions that can pave a clear fiscal consolidation path for the national economy. The largest Indian Public Sector Bank (PSB) said that addressing the issues in the NBFC sector in tandem with RBI is now of utmost importance in reviving the fortunes of the financial system.

Elaborating upon the budget 2019 expectations Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI said, "Our expectations are such that the Government would do better with reasonable fiscal deficit assumptions and should be very clear of the fiscal consolidation path. There may be, however, some limiting factors. For instance, FCI borrowings from NSSF (small savings) is already in excess of Rs 2 trillion or 1% of GDP. We believe the fiscal channel in India is more direct and quicker and the Indian financial system is in need of some serious repair. To us, an easy monetary policy with a reasonably tight fiscal deficit will be ineffective in addressing the existing demand slowdown." 

The Group Chief Economic Advisor at SBI said that monetary policy support is most welcome and we expect more rate cuts, questions are being raised regarding the limited fiscal space for revving up growth. She said that the Government could use the budget to address sector-specific measures. Addressing the issues in the NBFC sector in tandem with RBI is now of utmost importance in reviving the fortunes of the financial system, Ghosh added.

The SBI official went on to add, "The CPI inflation, as in the previous months has remained comfortably within the RBI's target level of 4%(+/-2%), and we expect FY20 CPI to average at 3.5%. The core CPI has declined to a 22-month low of 4.21% in May’19, with the decline in miscellaneous items like household goods, health etc. Going forward, core CPI will go down and the headline CPI will increase, leading to convergence in coming months. It may be noted, that the inflation numbers have come after the 25 bps rate cut by the RBI as also when the MPC has changed its stance to accommodative." 

Industrial Production growth for Apr’19, surpassing expectations of de-growth, accelerated to 3.4% y-o-y ( Apr’18: 4.5% y-oy). The impetus was given by Mining and Electricity sectors which displayed growth rates of 5.1% and 6.0% respectively. With the Q4GDP numbers a disappointment, we have to see if this IIP growth is temporary or not.