Goldman Sachs, on Thursday, said that it would be challenging for India to contain the fiscal deficit at the targeted level of 4.8 per cent of GDP for this fiscal.
The investment bank definitely sees some risks on the fiscal side not just because of upcoming elections, but mainly because of weak growth as tax revenues have underperformed. Also, the rupee depreciation has resulted in rise in subsidies of imported items such as oil.
“India’s finance minister has made a commitment to keep the fiscal deficit at 4.8 per cent and that is to us a tall order. We clearly see risk as it may come out higher than the 4.8 per cent level,” Tushar Poddar, Chief India Economist told The Hindu during a conference call on the Indian Economic Outlook.
The Indian Economic Outlook, which is released by the bank, pegs economic growth at 5.5 per cent for fiscal 2015. It signals gradual pick-up in growth, not a very rapid one through 2014 and 2015, inflation remaining high in the near term with more tightening measures from RBI, reduction in current account deficit (CAD) and generally quite a favourable external environment for India. He expects the RBI to increase its key policy rate to 8.5 per cent by mid-2014, from 7.75 per cent now.
Mr. Poddar said the current account deficit (CAD) would see a dramatic reduction during the next two years, mainly driven by pick up in export growth on the back of buoyant global demand. Also, a quite benign environment for commodities such as oil will aid the fall in CAD.
“We are looking at the CAD moderating and remaining below three per cent through the forecast horizon and that is the pretty significant change from FY13 when the CAD was close to 5 per cent ,” he added.