Govt may miss fiscal target again

The lower nominal GDP growth in the current fiscal may spell bad news as the government is likely to miss the FY16 fiscal deficit target, according to India Ratings (Ind-Ra).

FY16 fiscal deficit is set to rise to 4.1 per cent of the GDP, higher than the government budgeted target of 3.9 per cent. While the miss is due to lower than expected GDP, the absolute fiscal deficit is seen close to the budgeted figure at around Rs 5.56 lakh crore, which is a rise of 8.5 per cent (year-on-year), Ind-Ra said.

Fiscal deficit for the first eight months of FY16 stood at Rs 4.83 lakh crore, which is 87 per cent of the budgeted deficit for the full year.

The main reason for the higher than budgeted fiscal deficit as a percentage of the GDP is the lower than 11.5 per cent (nominal GDP growth assumed in the FY16 budget estimate) nominal GDP growth rate in FY16. Nominal GDP growth in FY16, is expected at 9.6 per cent, weaker than budgeted, due to lower than expected inflation.

Ind-Ra estimates that wholesale prices on an average have declined by 1.4 per cent (year-on-year) in FY16.

Ind-Ra believes that the fiscal deficit target can be met if fiscal deficit is compressed. “To achieve the 3.9 per cent fiscal deficit target, fiscal deficit will have to be compressed by Rs 21,100 crore. This can be achieved only by deferring parts of the subsidy payment to FY17, cutting down capex or a combination of both. Cutting down capex, when the need is to step up government investment, will be counterproductive,” Ind-Ra states.