Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: 4.8
Article rating: 5.0
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: 4.5
Article rating: No rating
Article rating: No rating
Article rating: 4.2
Article rating: 5.0
Article rating: 4.0
Article rating: No rating
Article rating: No rating
RSS

News

Fiscal position to worsen ahead of polls: Report

Author: PTI/Friday, August 17, 2018/Categories: Economy

Fiscal position to worsen ahead of polls: Report

Mumbai - Calling for a tight monetary and fiscal policy amidst global uncertainties and upcoming general elections, a foreign brokerage today warned of worsening fiscal position due to poll-related spending spree before next May when the new Parliament has to be instituted.

It has projected the consolidated fiscal deficit for FY19 at 6.5% of GDP against a budgeted 5.9%, which is only 10 bps lower than FY18.

"Specifically, there is a risk of the centre breaching its fiscal deficit target of 3.3% of GDP by at least 20 bps in FY19 unless it adjusts expenditure or non-GST revenue collection is higher than budgeted," Swiss brokerage UBS said in a note.

Noting that consolidated fiscal deficit was already stretched at 6.6% of GDP in FY18, it said, "we see a risk that the combined fiscal deficit will remain elevated at 6.5% of GDP in FY19 against a budgeted 5.9%."

Even though growth seems to be normalising, deteriorating macro-economic imbalances are again posing a concern to the domestic economy as the risks of the consolidated fiscal deficit missing the target for FY19 rises, Swiss brokerage UBS warned in a note today.

Though the centre has been committing itself to fiscal consolidation, the lower than-expected GST collection, rising states' fiscal deficits, and the risk of populist spending ahead of the 2019 elections is keeping markets on tenterhooks regarding possible fiscal slippage, it said.

As global uncertainties rise, crude prices escalate, emerging markets that are running twin deficits are likely to face heightened financial market volatility as well as downside risks to their growth outlook.

"The key is to ensure macro-economic stability so that a growth recovery can be sustained in the medium-term and is not sacrificed for the sake of short-term growth and inflation dynamics," it said.

While the monetary policy committee has already tightened the policy rate by 50 bps since June, the ball is now in the government's court to ensure fiscal discipline is maintained in a pre-election year, it added.

States also need to fund additional spending needs including farm loan waivers, higher wages and salaries, which are likely to keep their balance sheets stretched.

Projecting a below estimate GST collection in FY19 (monthly run rate of Rs 1,02,700 crore), it said the run rate during the first four months was only around Rs 97,500 crore.

"Building in tax buoyancy in monthly collections and incorporating the recent cuts in GST rates for various commodities, we see a risk of a Rs 25-30,000 crore or 0.15% of GDP shortfall in GST mop up in FY19, unless tax compliance picks up significantly," the report said.

Though the weaker fiscal position and higher public debt relative to peers do not pose any immediate threat to the debt sustainability, "we believe they are inflationary. According to RBI, an increase in the fiscal deficit-to-GDP ratio of 100 bps can lead to a permanent increase in inflation of about 50 bps."

Print Rate this article:
No rating

Number of views (315)/Comments (0)

rajyashree guha

PTI

Other posts by PTI
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free