MUMBAI -- Lower oil prices have led analysts to predict that the Indian government is likely to meet its fiscal deficit targets, and not overshoot. The finance minister is to present the federal budget on February 28.
Lower subsidies and recent excise duty hikes on oil products, following a sharp drop in crude prices from last June, will help in achieving the 4.1 per cent deficit target, they said today in separate notes.
"We expect the Government to stick to a fiscal deficit target of 3.6 per cent of GDP for FY16 from 4.1 per cent this fiscal," economists at private sector lender HDFC Bank said.
However, economists at American brokerage Citi said the target can be stretched to 3.8 per cent.
In a note, international rating agency Standard & Poor's mentioned the high deficit as one of the factors constraining it from revising India's sovereign rating.
"Lower crude oil prices, recent hikes in excise tax may provide fiscal space to stimulate public investment," economists at Standard Chartered said in a note.
Sectors like roads, rural development and power distribution will be allocated larger funds. These allocations are likely to increase capex to marginally above 2 per cent of GDP in FY16 from 1.5-1.6 per cent in FY15, it said.
In its effort to improve the quality of the deficit, the Government may change the composition of spending away from revenue spending and transfers towards capital outlays and investments, HDFC Bank said.
Citi said the Government has made a good start by targeting the low hanging fruits, but stressed that a lot depends on the Budget.
Stan Chart said it is expecting a "positive" move on the quality of fiscal consolidation, while HDFC Bank said it will be a 'make or break' Budget where the Government cannot compromise on either growth or austerity.