Fiscal deficit to be at 4.3% of GDP for FY15E: Goldman Sachs

India Infoline News Service | Mumbai |

We also expect a medium term consolidation path to bring the deficit down to 3% of GDP by FY18E, Goldman Sachs Global Macro Research report says

India’s new government will present its keenly awaited first budget on July 10. We expect a central government fiscal deficit target of 4.3% of GDP for FY15E, slightly higher than the 4.1% presented in the interim budget by the previous government, but lower than our previous estimate of 4.8%, according to Goldman Sachs Global Macro Research.
We also expect a medium term consolidation path to bring the deficit down to 3% of GDP by FY18E. We think the government will budget for a shift in the composition of spending from subsidies to capex. We also expect a number of structural reform initiatives to be announced, including a roadmap for Goods and Services Tax (GST), greater FDI in insurance/defense, and incentives for manufacturing, the report added.
We expect the budget to be positive for Indian equities, the INR, and neutral to marginally positive for rates. We discuss structural reforms needed for medium-term consolidation. These include a return to fiscal rules, taxing consumption instead of production, broadening the income tax base, including an independent Internal Revenue Service, and reducing fertilizer subsidies. Our analysis suggests that a 3% fiscal deficit target by FY18 should be achievable, with space for higher capital spending, the report further said.
The new government will present its first budget on July 10. The details will be keenly watched by investors both for the immediate- and medium-term path of the government’s balances, and for the government’s structural reform agenda. The budget offers the first opportunity for the new government to articulate its economic vision. In this piece, we pre-view the budget. We then look at structural reforms that could allow for medium-term fiscal consolidation, according to Goldman Sachs Global Macro Research report.


 

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