More spending cuts needed to meet fiscal deficit target: Nomura

Nov 29 2013, 22:23 IST
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SummaryWith fiscal deficit widening to 84.4 per cent of the budgeted target in the first seven months...

With fiscal deficit widening to 84.4 per cent of the budgeted target in the first seven months and the revenue collection falling way below the target, the government will have to undertake more austerity measures, a report said today.

"Because of the weaker-than-expected growth at the start of the fiscal, tax revenues are likely to miss the target and divestment mop-up may also be less than the target.

"In such a scenario if the government is committed to its fiscal deficit target of 4.8 per cent of GDP, it will have to cut back on spending much more sharply for the rest of the fiscal year," Japanese brokerage Nomura said in a report.

The finance minister has repeatedly been saying that fiscal deficit target of 4.8 per cent is a red-line that will not be breached at any cost.

During the first seven months deficit reached 84.4 per cent of the full-year budgeted target compared with 71.6 per cent last year. In the past five years the average was 67.5 per cent.

The economy grew at 4.8 per cent in the second quarter as against 4.4 per cent in the first quarter. It slumped to near decade low of near 5 per cent in the previous fiscal.

The net tax revenue growth in the fiscal so far remained muted at 6.8 per cent year-on-year as against the budget target of 19.3 per cent, while expenditure growth rose sharply to 18.3 per cent against the budgeted target of 18.2 per cent.

Last month, the government spending rose sharply by 32.2 per cent against 13.6 per cent in September, which more than offset a pick-up in net tax revenues in October at 23.4 per cent year on year as against 7.3 per cent in September.

"Our fiscal run rate monitor suggests that the run rate on the fiscal deficit has been higher in FY14 largely due to frontloading of public spending and weaker-than-expected growth in tax revenues," the report said.

The report also said the austerity drive by the government in the next four months will hurt GDP growth in first half of 2014.

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