In view of analysts at Standard Chartered, Indian data on central government finances for April-October 2019 has reinforced the stress on the fiscal deficit and a slippage in the FY20 (ending March 2020) fiscal deficit from the budgeted 3.3% of GDP is widely expected.
“Markets will keep an eye on the extent of the slippage as well as the share of the deficit funded by additional inflows to the public account.”
“We maintain our FY20 fiscal deficit forecast at 3.8% of GDP (budgeted 3.3%). We estimate the shortfall in gross tax collection at INR 3.8tn (15% of budgeted tax collection). A majority of this is due to the recent 10ppt cut in corporate tax rates (effective in H2). This, along with a likely slowdown in nominal GDP growth to 8.5% (our view) from the targeted 11%, is likely to dampen tax collection.”
“The revenue shortfall is unlikely to be fully offset even after factoring in (1) no slippage in the divestment target – only 20% of budgeted proceeds were realised during April-October 2019, (2) higher dividends and excess capital transfer from the Reserve Bank of India (RBI), and (3) expenditure management. We also see risk of a wider fiscal deficit than our forecast (3.8%) if economic activity remains slower than our expectations. A positive surprise could emerge on higher-than-budgeted collection from divestments or one-off revenue gains from the telecom sector.”
“We see additional market borrowing, as flows from the public account (especially NSSF) are unlikely to fully fund the fiscal deficit slippage.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.