The measures announced by the government lack implementation details and may not be enough to contain the fiscal deficit at 5.3%, said investment bank Nomura.
Finance Minister P Chidambaram today announced a new fiscal consolidation roadmap where the government is aiming to will cut the fiscal deficit to 3% of GDP by March 2017. The centre is looking at containing the fiscal deficit at 5.3% of GDP in FY13 as against the budgeted 5.1%. It is targeting a fiscal deficit of 4.8% next fiscal and wants to bring it down by 0.6 percentage points every year to 3% by FY17.
“The roadmap is a step in the right direction, but it lacks detail. In our view, the measures announced will be insufficient to contain the fiscal deficit at 5.3% of GDP in FY13 due to higher subsidies and lower tax revenues,” said Sonal Varma and Aman Mohunta, economists at Nomura in a note. The Japanese investment bank expects the fiscal deficit to be 5.8% of GDP in 2012-13.
“We see today’s announcement as a statement of intent. The timing of these announcements (one day ahead of the RBI policy meeting) also suggests growing political pressure on the RBI to cut rates tomorrow. In the absence of any credible plan to lower the fiscal deficit,” the note adds.
Nomura is of the view that the Reserve Bank of India at its monetary policy meet tomorrow will keep the repo rate unchanged and cut the cash reserve ratio (CRR) by 25 basis points.
The benchmark 10-year government bond today traded flat at around 8.13%.
