Why India’s fiscal forecast looks a bit clouded
mumbai/new delhi — India warned that fiscal slippages could be a drag on Asia’s third-largest economy in the year to March 2018, but pledged to meet its budget deficit targets as it sought to reassure investors and global rating firms.
The mid-year survey of the economy released by Prime Minister Narendra Modi’s chief economic adviser, Arvind Subramanian, also called for interest rates to be lowered even further as India struggles with subdued private sector investment and a banking sector grappling with rising non-performing assets.
It cautioned that “anxiety reigns because a series of deflationary impulses are weighing on an economy yet to gather its full momentum.” These include stressed revenues from the agricultural sector, farm loan waivers and declining profitability in the power and telecommunication sectors.
But it also pointed to optimism generated by structural reforms such as the introduction of the goods and services tax and the decision to privatise Air India. There is “growing confidence that macroeconomic stability has become entrenched,” the survey said.
“The economic survey is making the right noises in many places while at the same time it raises issues of fiscal uncertainty based on growth uncertainty,” said N.R. Bhanumurthy, Delhi-based economist at the National Institute of Public Finance.
“Demonetisation and GST implementation have caused structural changes in the economy,” he said, noting the central bank was “taking a more calibrated view on inflation”.
The central bank cut rates earlier this month to its lowest in seven years to boost the economy amid record low inflation. On Thursday, the central bank said it was paying a dividend of $4.6 billion to the government — its lowest in five years — putting New Delhi under pressure to achieve its budget targets through higher asset sales or cuts in subsidies. — Bloomberg