Election giveaways in India have been ramped up significantly this month, with small and medium-sized enterprises (SMEs) the main beneficiaries. Firms with annual sales of less than INR0.4m are now exempt from the Goods and Services Tax. Meanwhile, banks have been permitted to restructure distressed loans worth less than INR250m, sparing several SMEs from entering bankruptcy proceedings. And according to recent media reports, the government is also considering subsidising loans for businesses with annual sales of less than INR50m. All of this may prove politically popular among a key cohort – SMEs account for the vast majority of businesses in India. But the fiscal costs are slowly adding up. We expect the government to relax its budget deficit target for F18/19 in next week’s budget. More importantly, fiscal policy will have to be tightened significantly after the election has passed.
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