FRBM panel to relax FY18 fiscal deficit target to 3-3.5%: BofA-ML report

The government panel set up to review the working of Fiscal Responsibility and Budget Management (FRBM) Act, is expected to relax the fiscal deficit target to 3-3.5% of GDP for 2017-18, says a report.

According to Bank of America Merrill Lynch (BofA-ML), the N K Singh Committee would build cyclicality in setting fiscal deficit projections by switching to a target range (3-3.5%) from a point target of 3%.

The N K Singh panel is expected to submit the new fiscal consolidation roadmap report on Monday.

"After all India's growth typically drives fiscal deficits rather than the other way round," BofA-ML said in a research note.

The report noted that Finance Minister Arun Jaitley is expected to target a fiscal deficit of 3.5% of GDP —same as that of 2016-17 in his February 1 Budget.

On the Reserve Bank's policy easing stance, the report said that the Central Bank is expected to cut rates by 25 bps on February 8 and in April.

"We grow more confident of our call of a 25 bps RBI rate cut on February 8 (and April) after the release of latest CPI/WPI/IIP data," BofA-ML said adding that the RBI rate cuts will send a strong signal to banks to cut the effective lending rate, which really matters for growth.

On December 7, the Central bank kept interest rate unchanged despite calls for lowering it and also lowered the economic growth projection by half a percentage point to 7.1% in the first policy review post-demonetisation.

The Central bank will hold its next monetary policy meet on February 8.