The government might breach the fiscal deficit target this financial year amid drop in the revenue mobilisation and expected additional expenditure by the government, says a report.
According to Dun & Bradstreet's Economy Forecast, the need for fiscal stimulus has increased even as the government finances remain "strained".
"We expect that the drop in the revenue mobilisation of the government and likelihood of additional expenditure by the government might breach the fiscal deficit target in FY20," Dun & Bradstreet India Chief Economist Arun Singh said.
The government has set a 3.3 per cent fiscal deficit target for the current fiscal.
Singh further added that given the resources constraints, increase in fiscal deficit might lead to crowding out of private investments.
According to the report, corporate liabilities are already higher. The balance-sheets of corporates, government, banks and households remain constrained or weak and revenue collection will play an important role.
"Revenue collection will thus be important for the government to implement a fiscal stimulus. To do that, tax reforms are needed. GST should be simplified further, and direct tax collections should increase," Singh said.
As per the report, the index of industrial production is likely to remain subdued in the short to medium term amid slowdown in demand, lackluster investment and weak exports.
Moreover, optimism of India Inc remains clouded and cautiousness amongst investors have increased over the various graft and compliance related issues in the financial sector, it noted.
D&B expects Index of Industrial Production (IIP) to remain subdued by 0-1 per cent during November this year.
On the prices front, the report said food inflation is expected to remain higher, given the supply disruptions as crops have been damaged in many states, exerting upward pressure to the CPI inflation.
D&B expects the CPI inflation to remain in the range of 6.3-6.5 per cent and WPI inflation to be in the range of 2.1-2.4 per cent during December 2019, respectively.