The first budget of the Modi government is to be presented to the parliament on the 10th of July 2014 and Sensex, Nifty, INR and INR Bonds will show high volatility as numbers unfold in the budget. The market will focus on a few key numbers and for you to relate market movements to budget numbers, we are providing you with a Modi Budget 2014 Cheat Sheet.
The Cheat Sheet is a reference point on the key numbers of the Modi Budget 2014. You are advised to keep the Cheat Sheet open in front of you during the budget speech of the FM, Arun Jaitley on the 10th of July.
Key Numbers of the Modi Budget 2014
GDP at current market prices
The government derives all its budget forecasts from this number, which is the GDP at current market prices. The key numbers of the fiscal deficit is derived from the GDP at current market prices. Government borrowing that finance around 90% of the fiscal deficit is linked to the GDP at current market prices. Hence this number should be on top of your checklist.
In fiscal year 2013-14, GDP at current market prices was at Rs 113,550 billion, a growth of 12.3% over fiscal 2012-13 GDP of Rs 101,130 billion. GDP at current market prices is the nominal GDP while real GDP is adjusted for inflation by the GDP deflator.
The important number for Budget 2014 is the forecast growth in nominal GDP. The UPA government in the Vote on Account presented in February 2014 projected nominal GDP at Rs 128,934 billion for fiscal 2014-15, a growth of 13.5% over GDP for fiscal 2013-14.
The GDP number as projected in Modi Budget 2014, if it differs substantially from the number of Rs 128,934 billion projected in the Vote on Account, would affect fiscal deficit and government borrowing numbers.
Key Reference Number for Modi Budget 14: GDP at current market prices at Rs 128,934 billion
Gross Fiscal Deficit
Gross Fiscal Deficit (GFD) is the difference between government revenues and government expenditure. The GFD determines the borrowing of the government for a fiscal year.
GFD for fiscal 2013-14 was Rs 5080 billion or 4.47% of GDP at current market prices. The UPA government in the Vote on Account presented in February projected GFD at 4.1% of GDP at current market prices, which worked out to Rs 5286 billion.
As mentioned earlier, if the Modi Budget 2014 projects a higher nominal GDP and still maintains GFD at 4.1% of GDP, the fiscal deficit would be higher than the Rs 5286 billion projected in February 2014.
Key Reference Number for Modi Budget 14: GFD at Rs 5286 billion
Government Borrowing
Government borrows from the bond market to finance its GFD. In the fiscal year 2013-14, net government borrowing was Rs 4680 billion, which financed 92.1% of GFD. Projection for fiscal 2014-15 for government borrowing was Rest 4570 billion to finance 86% of GFD.
Higher GFD projected in Mode Budget 2014 would lead to higher government borrowing.
The GFD is the difference between revenues and expenditures of the government. Revenues are predominantly driven by tax collections that form close to 85% of total revenues. Expenditure is dominated by three items a) Interest Payments b) Defence and Services and c) Subsidies, which together form 51% of total government expenditure.