Will PM Modi’s farm package shatter capex revival hopes?

NEW DELHI: Prime Minister Narendra Modi may have signalled his reluctance to farm waivers in general, but a pan-India direct farmer support scheme to ease rural distress could well make its way to the interim Budget or even earlier.

Such a relief package for farmers would delay revival in capex cycle, cautioned CLSA.

Pressure to expand the farmer welfare programme ahead of the 2019 national elections is high for Modi, the foreign brokerage said pegging the cost at Rs 1.15-1.20 lakh crore, assuming a relief of Rs 5,000 per acre.

The Centre, it said, could share the cost in 60-40 ratio with the participating states.

A simpler break-up suggests a cost of around Rs 70,000 crore, or 35 basis points, of GDP for the Centre in FY20.


“A Telangana-style scheme could cost around Rs 1.2 lakh crore, further complicating fiscal maths, as it could be a recurring liability,” the brokerage said, adding that the possible large dividends from the RBI might help just one time.

The GST-led tax revenue shortfall of 75-80 basis points of GDP is not reflected in the reduced government expenditure for FY19 due to off-balancesheet funding, which is not a sustainable solution, CLSA said further.

“It will create its own problems later and distort the reported fiscal deficit for FY19. We expect the ‘real’ government expenditure growth to slow down. The impact on capex will be even greater if the farmer support scheme is implemented,” the brokerage said.

It expects firms like ITC to rally as the Budget is unlikely to tinker with tobacco taxation.