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Budget 2018: Fiscal deficit may rise to 3.5% of GDP in FY19, says Goldman

The revenue targets are on the optimistic side, particularly on recently- introduced GST tax revenue growth

Press Trust of India  |  New Delhi 

A sign is displayed in the reception of Goldman Sachs in Sydney (Photo: Reuters)
A sign is displayed in the reception of Goldman Sachs in Sydney (Photo: Reuters)

The budgeted is in line with expectations but there are some risks of slippage in financial year 2018-19, unless economic activities formalise at a rapid pace, says a report.

According to the global financial services major, while the budgeted deficit is in line with expectations, the revenue targets are on the optimistic side, particularly on recently- introduced GST tax revenue growth.

"We estimate a 20 bps upside risk to the in 2018-19, unless economic activities formalise at a rapid pace over the coming year to generate the necessary buoyancy in revenues," said in a research note.

The government outlined a target of 3.3 per cent of GDP in 2018-19 as against a revised estimate of 3.5 per cent in 2017-18, indicating some fiscal consolidation, albeit at a slower pace than that recommended under the Fiscal Responsibility and Management (FRBM) framework.

According to Goldman Sachs, risks tilted towards a higher fiscal deficit for 2018-19.

Lower indirect tax revenue collections may outweigh any upside risks from higher nominal GDP growth, non-tax revenue and direct tax collection, it said adding the government is unlikely to cut spending considerably next year, even if revenues undershoot the budgeted amount, in order to support growth ahead of the elections.

"This could take the fiscal deficit to 3.5 per cent of GDP versus the 3.3 per cent budgeted," it noted.

Moreover, higher oil prices could exert additional pressure on the fiscal deficit.

Based on the overall oil subsidy estimate in the budget, the government appears to have assumed oil prices to average between $60-65/bbl, about $10-15/bbl lower than the commodity team's oil price forecast.

"We estimate that every USD 10/bbl increase in oil prices could increase the fiscal deficit by 0.3 pp of GDP if the government absorbs the entire shock," it said.

Goldman Sachs' equity analysts see the as positive for infrastructure, industrials, autos, financials, and healthcare, but negative for oil and gas sector.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Mon, February 05 2018. 17:23 IST
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