Even as reports of the government mulling a fiscal stimulus to bolster the economy gain further traction, the Japanese financial services major Nomura has clearly warned against any such move; as it may further widen the fiscal deficit. According to research and brokerage firm, the present macro problems are due to higher spending and not lack of it and also not due to low revenue receipts and hence a fiscal stimulus at this point in time may be counterproductive.
“The fiscal stress is more a result of excess spending thus far, which has not left much room for spending in the remaining months: it can rise only 1.5 per cent y-o-y in August-March versus 23.1 per cent in April-July to meet the FY18 budgeted spending target. Therefore, a fiscal stimulus may not be so much to boost growth as to prevent a bigger drag,” Nomura said in its report.
In the report, Nomura notes that thus the real culprit was spending and not revenue for the widening fiscal deficit as revenue collection for April-July was only 2.1 per cent below the historical average, and expenditures had been 7.5 per cent above the historical run-rate.
On its outlook going forward, Nomura said, “We expect some revenue shortfall on telecom receipts, disinvestment and dividends, but the buoyancy in direct tax collections suggests the overall revenue miss should not be large. Despite teething issues, GST should lead to higher revenues as it has been inflationary.”
Earlier this week, Arvind Panagariya, the former vice chairman of NITI Aayog advised the Narendra Modi-led government against spending a huge amount on any fiscal stimulus, as he believes that the effort taken for fiscal consolidation so far may go down the drain. In a blog featured in the Times of India, he wrote, “The government must especially resist the temptation to go on a spending spree pre-emptively. It has taken three years of determined effort to achieve fiscal consolidation. This achievement cannot be sacrificed without compelling evidence justifying it.”