Leading global brokerage firms are of the opinion that the targeted reduction in India's fiscal deficit in the next financial year might be difficult to achieve.
According to global firms HSBC and Bank of America Merrill Lynch (BofA-ML), containing the fiscal deficit at less than 4.8 per cent of GDP in 2013-14 is positive for the economy, but the targeted consolidation would be more difficult to come by in the next financial year.
Presenting the interim budget, Finance Minister P Chidamabram on Monday said fiscal deficit for the current financial year would be contained at 4.6 per cent. The fiscal deficit, which is the gap between expenditure and revenue, was 4.9 per cent of GDP in the previous financial year.
According to HSBC, containing the deficit at less than 4.8 per cent of GDP has largely been achieved by pushing back expenditures and moving forward tax and dividend collections.
"Therefore it implies that the targeted fiscal consolidation will be more difficult to come by in the next fiscal year," it said.
BofA-ML in a research report released on Tuesday said, "We see 50-100 bps upside risk to the fiscal projections. At the same time, we need to wait for the full year Budget."
Citigroup in its research note said, "We do believe the assumptions are on the optimistic side and the extent of deviation would to a large extent depend on the growth overturn - pick-up in investment cycle - which to an extent rests on a stable political outcome".
A research report by State Bank of India said, "Attainment of fiscal deficit at 4.6 per cent for FY 2014 has been achieved through counter balancing the decline in tax revenue at Rs 48,052 crore through an expenditure compression of larger magnitude at Rs 74,863 crore."
The government has also pushed Rs 35,000 crore of petroleum subsidies into FY 2015. Additionally, the government has seemed to have used Rs 15,000 crore of its cash balances to retire debt, thus lowering the fiscal deficit in the process, it said.
Also, a large chunk of interim dividend payments by non-departmental enterprises has been used to augment the revenue-expenditure mismatch, the SBI research note added.
The FY 2015 fiscal deficit target of 4.1 per cent of GDP is narrower than the 4.2 per cent envisaged in the October 2012 fiscal consolidation plan.
"Adherence to the targets outlined in the plan should alleviate concerns about a sovereign-rating downgrade near-term. However, concerns remain over the quality of fiscal consolidation," Standard Chartered said in a research note.
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