India: Fiscal arithmetic gets tougher – Nomura

FXStreet (Barcelona) - The Research Team at Nomura notes that it would be challenging for India to reach the proposed fiscal deficit target of 4.1% of GDP in FY 15 after today’s data highlighted that the deficit already reached 98.9% in the first 8 months of the yearly target.

Key Quotes

“Meeting the budgeted fiscal deficit target of 4.1% of GDP for FY15 looks challenging. The central government's fiscal deficit reached 98.9% of the full-year target during the first eight months of FY15 (April-November) compared with 93.9% in FY14 and an average of 83% in FY12-FY13.”

“The government‟s fiscal finances were in a similar situation last year. The difference is that while spending was higher and revenues lower last year, only lower revenues (and not higher spending) are responsible for this year's tight fiscal situation. Apart from a slow start to disinvestment, tax revenue collection has lagged this year (4.3% y-o-y in Apr-Nov compared with a budgeted growth target of 19.8%).“

“In our view, even if disinvestment picks up, achieving the 4.1% of GDP target would require sharp expenditure cuts, delayed payments (tax refunds) and higher dividends from public sector companies in the next three months. Hence the quality of fiscal consolidation will likely suffer again.“