Mumbai, Mar 1: Domestic rating agencies have said while some of the revenue growth expectations expressed by Finance Minister Arun Jaitley’s in the Union Budget are optimistic, but the government will have to deliver on the fiscal targets before the central bank can cut rates. “A closer look at the Budget math indicates that the revenue expectation is highly optimistic and for the government to stay on the fiscal consolidation path, it will have to cut capital expenditure,” India Ratings said in a statement today.

“Sticking to the fiscal deficit target despite pressure to undertake stimulus measures to revive growth will pave the way for the Reserve Bank of India to cut policy rates,” its peer Crisil said. The agency said a rate cut may come as early as the next policy meeting, following the government achieving the FY16 fiscal deficit target of 3.9 per cent. (Also Read: Union Budget 2016; Mutual Funds say lower deficit target will bring down cost of funds)

Another agency Icra said a “final rate cut” of 0.25 per cent can come in 2016, provided the monsoons are normal. It, however, raised question marks over the 14.2 per cent revenue growth target, which has been arrived at after calculating an 18.1 per cent growth in income tax, 12.2 per cent growth in Excise duty and a whopping 76.67 per cent growth in non-tax revenue from communication services expecting a windfall from the forthcoming spectrum sales.

“The assumed buoyancy of income tax is optimistic; Excise resilience seems believable on the back of the increase in the clean environment cess and infrastructure cess,” it said, and even the non-tax revenue from other communication services also appears optimistic. Icra said spectrum sale (Rs 98,000crore), divestment (Rs 36,000 crore) and strategic divestment (Rs 20,000 crore) are optimistic, but tax growth targets are realistic. Crisil, however, offered a different view saying the government has got its maths correct, and that most of the tax collection targets are achievable, except income tax and corporate tax.

It said while the overall subsidy burden is likely to come down on lower oil subsidies, there is only a mild hike in productive spending (which includes capital spending and revenues grants for creation of capital assets) has been increased only marginally to 2.75 per cent from 2.73 per cent. Icra said a “substantial portion” increase in the Central Plan outlay will be funded through extra budgetary sources, including institutional finance and market borrowings to be raised by NHAI and the Railways. Even though the government’s borrowing is lower in FY17, this will push up bond yields and crowd out the private sector, it warned.