PM Modi is feeling the heat after his ruling Bharatiya Janata Party lost control of three key states in regional elections last month, setting the stage for a contentious national vote that’s due by May.
He’s coming under pressure from a resurgent opposition, which is going all out to lure voters with debt waivers for farmers and pledges of welfare grants for the poor.
Speculation is swirling that the PM’s fiscal plan includes a cash transfer program for farmers entailing an additional spending of 70,000 crore rupees ($9.8 billion), support for small businesses and some reprieve for taxpayers.
For investors, that translates into another breach in the budget deficit target of 3.3 per cent of gross domestic product this year and possible record borrowing in the coming year.
“In the event of the incumbent government staying in power or the Congress-led coalition taking over, fiscal policy will likely remain overly loose, with the deficit likely to remain well above the 3 per cent comfort level,” said Prakash Sakpal, an economist at ING Groep NV in Singapore.
Deficit economists in a Bloomberg survey expect the government to widen its target for FY19 to 3.5 per cent of GDP from 3.3 per cent.