BUSINESS

Slim Chance That India Can Meet Its Fiscal Deficit Target Of 3% Of GDP, Says Crisil

Need a miracle.

25/01/2017 4:30 PM IST | Updated 25/01/2017 4:30 PM IST
jayk7 via Getty Images

NEW DELHI -- Can India meet a fiscal deficit target of 3 per cent of GDP for 2017-18? "Short of a miracle, 'no'," says Crisil Research, ahead of the presentation of the Union budget, due next Wednesday.

The agency says an additional spending window can be created if the fiscal deficit target is relaxed to 3.5 per cent of GDP, in which case the government must demonstrate credible steps to lift the tax ratio in the coming years to ensure medium-term fiscal sustainability.

"India will also have to prune its fiscal deficit by Rs 280-350 billion from the level in the previous fiscal (2016-17) in order to reduce the fiscal deficit ratio to 3 per cent in 2018, as per the Fiscal Responsibility and Budgetary Management (FRBM) commitment," it added.

The ratings agency said the upcoming budget has two tasks cut out: Address the demand shock due to demonetisation and bolster faltering investment demand. At the same time, the advancement of the budget date gives the government more time to plan and implement its spending programmes.

"The good news, perhaps, is the bad news has already hit. Sagging areas of the economy have been identified and fiscal constraints clearly drawn. Sure, the budget has to perform a tight rope walk between kick-starting consumption-investment cycle and maintaining fiscal discipline."

Crisil Research also said in the best-case scenario some windfall from demonetisation can provide one-time fiscal space in 2017-18. Over the medium run, the proposed Goods and Services Tax regime and steps to improve compliance will help raise taxes.

"But expenditure will have to precede collection and compliance to spur growth, so some transitory relaxation of fiscal target may be inevitable in the coming fiscal. On the contrary, if it turns out that the government has been betting on the wrong horses, we might be bracing ourselves for an even tougher winter by the end of this year," it said.

"We bet on the former playing out."

Also On HuffPost:

50 Classic Woody Allen Lines

More On This Topic