The budget was already under strain even before his weekend's events in Karnataka -- the state where PM Modi's BJP failed to form a government. The fiscal target was breached in the 2018 financial year, while the goal for this year was widened to 3.3 percent of gross domestic product.
"The Karnataka election is an additional source of uncertainty," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities in Mumbai. While there's usually a risk of fiscal slippage in the year before elections, the rise in oil prices is worsening the picture, he said, forecasting a budget gap of 3.5 percent of GDP this year.
Pranjul Bhandari, chief India economist at HSBC Holdings Plc, said election pressures may prompt the government to cut excise duties rather than raise pump prices, pushing up the deficit. She estimates that for every $10 per barrel rise in global oil prices, the fiscal gap would increase by around 0.3 percent of GDP.
Election Battle
In the past six months, the BJP has faced stiff competition from the opposition Congress Party in PM Modi's home state of Gujarat and in by-elections in Bihar, Rajasthan and Uttar Pradesh. While the BJP won more votes in Karnataka than in the last election, it fell short of an overall majority.
"The stance of the central and various state governments will turn more pro-rural and possible freebies will mean macro will remain under pressure," analysts at CLSA India Private Ltd. led by Mahesh Nandurkar wrote in a note. "Rural support is the need of the hour for the government given that rural wage growth has been quite weak at 4-6 percent over the last four years."
Economists at Nomura Holdings Inc. wrote in a report last week that they expect the BJP to focus on lifting rural incomes and alleviating farm distress in coming months given upcoming votes in states like Madhya Pradesh and Rajasthan and the 2019 general election.
But authorities have a fine balancing act in boosting spending to farmers, while keeping the budget deficit under control.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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