Fiscal deficit is the difference between total revenue and total expenditure of the government and is an important barometer to measure the health of the economy.
Rao told that markets, including the debt segment, have already factored in a slippage in the fiscal deficit target. Hence a miss, which will keep fiscal deficit to anywhere below the 4 per cent level, might not result in a knee jerk reaction as this slippage has largely been priced in, she said.
For equity markets, a marked miss in deficit numbers, Rao said, could mean lower scope of monetary easing. But this could be offset by any significant positives by way of LTCG or DDT relaxation.
On the upcoming Budget, Rao said that the slew of measures since August 2019 announced by the Central government was directed to specific sectors and hence the "support for growth is not limited to the Budget".
"The Budget will be important to get a direction as to where the Centre's priorities will be over the coming year in terms of their investment agenda and support for consumption/income. On the sectoral front, real estate/construction and auto sectors might be deemed important," Rao said.
On NBFC crisis, Rao said that concerns over the health of the sector persists. Markets expect a stronger rescue package from the Budget, but we reckon that this might be considered beyond the Budget and by the regulators, she said.
One of the more popular aspects of this year's Budget may come in the form of tax breaks on the personal income front. Rao said that she expects tax breaks for this segment may come via rationalisation in slabs or with higher exemption threshold.
Markets will be encouraged by the reduction in PIT which will be seen as a boost for consumption and related trades.
The last Union Budget came as a shocker to the stock markets because of the tax on FPIs. The Central Government's tax collections have also missed the targets. The development on the revenue front has created a tricky situation for the government which would need additional funds to give stimulus to revive growth in the economy.
However, Rao does not expect a fresh push towards raising tax revenues through higher rates. Instead, emphasis will be on improving collections by expanding the tax base and improving compliance.
"For FY21, we expect more support from divestment and other non-debt creating revenue streams," she said.
( can be contacted at ravudutta.m@.in)
( With inputs from IANS )