Economy
India’s revised fiscal deficit target of 5.3% will be in the realms of possibility, says Nomura

The fiscal surplus in December is partly seasonal, but it also reflects the ongoing severe clampdown on expenditure by the government and robust receipts, led mainly by indirect taxes

India’s fiscal deficit during the first nine months of FY13 has come down to 78.8% of the budget estimates (BE) compared with 93.1% a year ago period. This is partly seasonal, but also reflects the ongoing clampdown on expenditure and robust indirect

tax receipts, says Nomura in a research report.  

 

It said, “If the government slashes plan expenditure by 28% in FY13, as reported in the media, and postpones subsidy payments, then the revised fiscal deficit target (5.3% of GDP) will be in the realms of possibility with a chance of even under-shooting it.”

 

According to the data released by Controller General of Accounts (CGA), in absolute terms, the fiscal deficit or gap between expenditure and revenue receipts stood at Rs4.04 lakh crore at the end of December 2012.  The government has rolled out the fiscal deficit road-map for the 12th five year plan. It estimates fiscal deficit to come down to 3% of the GDP by 2016-17. For the current year, the deficit is estimated at 5.3%, up from earlier estimate of 5.1%.

 

The fiscal surplus in December is partly seasonal, but it also reflects the ongoing severe clampdown on expenditure by the government (-9% year-on-year in December 2012) and robust receipts (20%), led mainly by indirect taxes. India’s fiscal balance recorded a surplus of Rs8,230 crore in December 2012 compared with a deficit of Rs45,000 crore in November 2012. Consequently, the fiscal deficit reached 78.8% of the full-year budget during April-December compared with 93.1% in the corresponding period last year, the report said.

 

Expenditure growth has fallen from near 20% year-on-year during April-August to 0.4% year-on-year during September-December 2012, owing to cuts in plan expenditure and delayed subsidy payments to oil companies. As a result, the current run rate on expenditure is 1.5 percentage points (pp) lower than its historical average, which is partly offsetting the slippage due to lower receipts (8.6pp lower).

 

This is the story of India’s fiscal balance moving into a surplus in December 2012, much against widespread fears from economists and the threat from international rating agencies to downgrade investments in India.

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India Manufacturing PMI falls to 53.2 in January

The manufacturing sector growth fell further in January as a slower expansion in new orders and power outages slowed output growth
 

India’s manufacturing output recorded a decline last month. While the overall rate of growth remained firm, the growth slipped to a three-month low, the HSBC India Manufacturing Purchase Managers’ Index (PMI) showed.

 

The HSBC manufacturing PMI, an indicator of the country’s manufacturing output growth, eased to 53.2 in January 2013, from 54.7 in December 2012 as power shortages hampered production and inventories were used to satisfy demand requirements wherever possible.

 

The HSBC India Manufacturing PMI is based on data compiled from replies to sent to purchasing executives in over 500 manufacturing companies. A reading of over 50 shows expansion, while below 50 indicates contraction.

 

Continuing the trend that started in April 2009, output at manufacturers in India rose during January. While solid, the rise in production was the slowest recorded in three months, the HSBC Markit release said.

 

Total new business rose solidly, although growth eased from December. Meanwhile, new export orders increased for the fifth straight month, and also at a solid rate. Panel members stated that demand from foreign clients was higher. In line with stronger sales, manufacturers in India increased their input buying in January, the release said.

 

Pre-production inventories rose for the ninth month in a row, but on a lower scale. On the other hand, post-production inventories were depleted as power shortages hampered production and inventories were used to satisfy demand requirements wherever possible.

 

Staffing levels in the Indian manufacturing sector increased during January, amid reports of higher workloads, the HSBC PMI indicated. Meanwhile, input and output prices both increased in January, with rates of inflation again marked.

 

Commenting on the survey, Leif Eskesen, chief economist for India and ASEAN at HSBC said, “The growth momentum in the manufacturing sector eased in January as a slower expansion in new orders and power outages slowed output growth. Encouragingly, input and output price inflation continued to ease, albeit only gradually, supporting the case for the Reserve Bank of India’s cautious policy rate cut earlier this week.”

 

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