Government has struck a balance between prioritising capital spending and being fiscally prudent and the 'favourable expenditure mix' should support 2017-18 growth, says a Goldman Sachs report.
Government has struck a balance between prioritising capital spending and being fiscally prudent and the ‘favourable expenditure mix’ should support 2017-18 growth, says a Goldman Sachs report.
According to the global financial services major, fiscal consolidation in 2017-18 is mainly driven by a reduction in expenditure, particularly current spending.
“Overall, we believe the government has maintained a balance between prioritising capital spending and being fiscally prudent,” Goldman Sachs said in a research note.
The government, in its annual Budget, called for a reduction in fiscal deficit to 3.2 per cent of GDP in 2017-18, from a projected 3.5 per cent in 2016-17 and an estimated 3.9 per cent in 2015-16.
“The budgeted fiscal consolidation takes place via a decrease in total expenditure as a percentage of GDP, especially current expenditure, while capital spending remains high,” the report said.
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It added that the revenue targets look “achievable”, with any downside risk to disinvestment target potentially offset by somewhat higher tax revenue growth.
The Economic Survey forecasts GDP growth at 6.75-7.50 per cent in 2017-18.
“The budgeted primary deficit net of disinvestment proceeds is unchanged at 0.6 per cent of GDP in 2017-18 versus 2016-17, suggesting limited negative impulse on growth from the proposed fiscal consolidation in 2017-18,” it said adding, the favourable expenditure mix should support 2017-18 growth.
The report further noted that though the recent fall in headline inflation along with fiscal consolidation, supports the possibility of a rate cut by the RBI at its next policy meeting, several other factors warrant a cautious approach.
“Our base case remains for a 25 bps rate cut by the RBI at its meeting on February 7-8, but we acknowledge that this will be a close call,” it added.
The central bank will hold its next monetary policy meet on February 8.