The FY16/17 Union Budget saw the Indian government prioritise fiscal discipline and macro-stability over growth (capex spending) of February 29, 2016.
In contrast to consensus and DBS expectations for a slower pace of fiscal tightening, the FY16/17 deficit target was maintained at -3.5% of GDP.
This implies a 0.4% of GDP worth consolidation from an estimated -3.9% this year.
“We reckon that a partial implementation of the pay commission proposals and unchanged bank capital infusion plans eased the spending burden, helping to keep within deficit targets,” said Singapore’s DBS banking group.
No changes were made in the fiscal roadmap, differing from the Economic survey’s inputs last week. The FY18 deficit target of -3% of GDP was retained.
However it was proposed that a committee would review the Fiscal Responsibility and Budget Management (FRBM) Act and possibly shift from point targets to a range forecast.
Net borrowings for FY16/17 are pegged at INR 4.25trn (vs INR 4.5trn in FY15/16) and gross borrowings at INR 6trn.
Overall, FY16/17 budget saw the government prioritise fiscal discipline and macro-stability over a push to increase capex spending. Higher allocations to agriculture and the rural sector, if implemented efficiently, would be positive for consumption, providing support for urban demand.
Rating agencies are expected to view the FY16/17 budget positively, but flag concerns over the limited support to banks’ capital needs and slow improvement in subsidy reforms.
“With the government signalling commitment to fiscal consolidation, we expect the Reserve Bank of India to respond with a rate cut at its April rate meeting but note the increased chances of an inter-meeting move this month,” commented DBS. fii-news.com
