- August 11, 2017
- Posted by: admin
- Category: Daily News
- India warned that fiscal slippages could be a drag on Asia’s third-largest economy in the year to Mar 18, but pledged to meet its budget deficit targets as it sought to reassure investors and global rating companies.
- India’s budget shortfall is forecast to be 3.2% of gross domestic product in the year to Mar 18. While that would be smaller than 2016’s 3.5%, it’s wider than the target of 3%. The government intends to hit that target in 2018, the economic survey said.
- The federal government has slowly brought the gap down from 5% of GDP a few years ago. But the deficits are actually widening at the state level — leaving India’s financial position essentially unchanged from 2012, before Modi took power. The problem is likely to get worse as populist farm loan waivers and other spending sprees pick up ahead of the general election in 2019.
- The USD2tr economy is still recovering from Modi’s unprecedented cash ban imposed late-2016. And while the introduction of the goods and services tax in early Jul 17 went off smoothly, there are indications that India’s vast shadow economy — which makes up for an estimated half of the country’s gross domestic product — has been hurt by both the cash ban as well as the introduction of the sales tax.
- Add to that underlying slack at factories, rising job losses and anemic loan growth could slow expansion before Modi faces re-election in 2019. His government has limited room to increase spending because it runs a bloated budget deficit, and room for monetary easing may close when the Federal Reserve starts reducing its balance sheet later in 2017.
- A clutch of surveys from the Reserve Bank of India in Aug 17 showed Indian factories were running at about 74% of capacity, business sentiment in Indian manufacturing worsened in 2Q17, consumer confidence dipped into the “pessimistic zone” in Jun 17, and more households expect prices to rise in 3Q17 after a record-low 1.5% reading in Jun 17.