India’s fiscal deficit to overshoot target: Fitch

4th February, 2019 11:34:50 printer

NEW DELHI: Fitch Solutions, the research arm of Fitch Group, Monday projected the government's fiscal deficit to overshoot the budgeted target by 0.2 per cent to 3.6 per cent of GDP in 2019-20 fiscal.

It said that 2019-20 Budget appears to show a strong populist bent in the run up to the General election due by May 2019, report agencies.

It is on expected lines considering that the ruling Bharatiya Janata Party (BJP) is looking to shore up its popularity following its loss of three strongholds in agrarian states at the November/December 2018 state legislative assembly elections, it stated.

"We believe that expenditure growth will exceed the government's projections, giving our expectation for high election spending and the budget speech's repeated emphasis that 'if necessary, additional funds will be provided'. Additionally, the government's revenue growth projections also appear too optimistic given its sweeping tax rebates for the middle class and small business," Fitch Solutions said. Accordingly, Fitch Solutions revised its forecast for the central government fiscal deficit to come in at 3.6 per cent of GDP in FY 2019-20, from 3 per cent previously, which reflects our expectation for a wider fiscal deficit in FY 2019-20 versus FY2018-19.

"We believe that continued fiscal stimulus by the central government will see the government miss its goal of lowering its fiscal deficit to 3 per cent of GDP by FY2020-21," it said in a note titled 'India's Populist FY2019-20 Budget To Delay Fiscal Consolidation'.

The central government plans to spend a total of Rs 27.8 lakh crore in fiscal 2019-20, a 13.3 per cent increase over the 2018-19 revised budget estimates. "By contrast, we are looking at expenditures rising at a quicker rate at around 13.8 per cent, given the upcoming Lower House election, and the ruling BJP's desire to shore up support on the ground.

"Although agriculture, rural development and transport infrastructure remain the largest expenditure areas, the budget speech focused heavily on agriculture, social welfare, education, and healthcare, likely aimed at appealing to members of scheduled castes and scheduled tribes, which form 25 per cent of the total population, and farmers, which account for 58 per cent of India's labour force," Fitch Solutions said.