The Interim Budget 2019-20 shows that the growth rate in tax revenues will slow down. Total tax revenue is projected to grow 13.5% in FY20 as compared to 17.2% in FY19. While the rural and middle class incentives could have a positive impact on consumption, the Budget shows a fall in capital expenditure. The share of capital expenditure in total expenditure is at 12.1% in FY20. Being an election year, the government focused on the farm sector with an income support scheme called PM-KISAN. The government will provide Rs 6,000 a year to around 120 million small and marginal farmers with land holdings up to 2 hectares. The cash transfer will mainly benefit marginal and small farmers in Hindi-belt states such as Uttar Pradesh, Madhya Pradesh, Chhattisgarh, Rajasthan, Jharkhand and Haryana, which are all electorally key for the BJP.
In addition to the new scheme, the government has increased allocation in most rural schemes. In fact, the total allocations to major rural schemes is around Rs 4,34,600 crore in FY20, a 22% increase from the revised estimates of FY19. The gross market borrowing of the Union government is budgeted to rise by 27% year-on-year to Rs 7.6 lakh crore. This is likely to pressure bond yields. Also, off-budget and PSE borrowings have been rising, which have led to a structural steepening of the yield curve.