Government may adopt populist tone in Budget, says CLSA

MUMBAI: Brokerage CLSA has said that the Union budget, likely to be presented on February 1, will likely be the last significant budget of the Modi government, where it could adopt a political or populist tone.

The closer-than-expected contest between the BJP and the Congress means that the government will further intensify pro-poor/rural policies, said CLSA.

The brokerage said the situation is complicated by the likely weak fiscal position as it believes GST collections are significantly under-shooting government's targets. However, this is a bigger concern for FY19 and not FY18, as the one-time IGST float should help in FY18, said CLSA.


"While we believe a mild relaxation in targets for the fiscal deficit and CPI inflation (evident in a higher MSP hike) would be positive for growth, the govt will need to walk a tightrope so that macroeconomic stability doesn’t become a question," said CLSA.

CLSA said 10-year G-Sec yields have already moved up from 6.4% in July to 7.18%, which partly builds in the fiscal risk. However, the yields would harden further if a large fiscal slippage materialises in FY19. "Yield hardening would be a negative for NBFCs," said CLSA.