India: Fiscal impact of any farm stimulus to be limited – Standard Chartered

Analysts at Standard Chartered expects the Indian government to target a narrower fiscal deficit of 3.2% of GDP in FY20 by limiting expenditure and adhere to the fiscal deficit target of 3.3% of GDP in FY19 (ending 31 March 2019).

Key Quotes

“Risks to our fiscal deficit forecasts include the following: (1) the government announces increased expenditure to reduce farmers’ distress, (2) a transfer of excess reserves from the Reserve Bank of India (RBI) to the government for a one-time revenue gain, and (3) oil prices move above USD 70/bbl. In this report, we focus on the likely impact of a potential increase in government expenditure to address distress in the farming sector.”

“Media reports indicate that the government is considering one of these three measures to support farmers ahead of the national elections in mid-2019: (1) introducing a new direct income support (DIS) scheme, (2) cash handouts to farmers for the difference between the minimum support price (MSP) and the actual sale price, and (3) revamped or more subsidised crop insurance scheme. The government may also consider farm loan waivers; however, comments from the ruling party indicate a low probability of this option.”

“If implemented successfully, we estimate the potential impact of such measures on the combined fiscal deficit at 0.1-1.0% of GDP, depending on the scheme announced. The net impact on the central government depends on its sharing formula with the states.”