Nomura estimates that the austerity measures announced yesterday can lead to a saving of 0.3%-0.4% of GDP, in its research note on fiscal slippage
To address the fiscal risks, the Finance Ministry yesterday announced a set of austerity measures, including:
(a) A mandatory 10% cut in non-plan expenditure for all departments, excluding spending on interest and debt repayment, defence capital, salary, pension and grants to states.
(b) Restrictions on holding seminar/conferences, domestic/foreign travel and a ban on the purchase of vehicles and the creation of new posts for government departments.
(c) Not more than 33% of the budgeted spending may be spent in the last quarter (Jan-Mar) and spending will be limited to 15% during the month of March.
According to a research note by Nomura First Insights on fiscal slippage, the austerity measures announced can lead to a saving of 0.3%-0.4% of GDP. This is important to the government as the fiscal deficit during the first four months of FY14 (year ending March 2014) reached 63% of the full year's budgeted target. Recent trends of slowing tax revenues, sluggish asset sales and a rising subsidy burden (oil, food and fertiliser) had raised doubts about the government's ability to meet its budgeted fiscal deficit target of 4.8% of GDP in FY14.
Nomura argues that the austerity measures announced today should partly enable the government to plug the fiscal gap. A hike in fuel prices (diesel and LPG) is already pending; the government should announce this soon to lower the oil subsidy burden. More spending cuts may become necessary during the course of the year depending on the revenue trends and the outlook on currency and oil prices.
Nomura cautions that finally, the spending cuts will adversely impact growth. High government spending was one of the main drivers of real GDP growth of 4.4% y-o-y in Q2 2013. With spending likely to be slashed and financial conditions much tighter starting July, we expect private demand to slow down further. Nomura expects real GDP growth at 4.2% y-o-y in FY14 versus 5% in FY13, despite better agriculture performance.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
