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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