Mumbai, Oct 13 (PTI) As government mulls a possiblestimulus package to revive the economy, Swiss brokerage hasestimated a slippage of 0.5 per cent on the 3.2 per centfiscal deficit target for the current year.
"We believe the Centre will likely breach the FY18fiscal deficit target of 3.2 per cent of GDP by 0.5 per centif its goes about with a fiscal stimulus package," analysts atUBS Securities said in a note today.
"The government is contemplating deviating from budgettargets, which could result in fiscal slippages," the notesaid.
They analysts said the slippage will be on lowerrevenue collections through Excise duty cuts, lower telecomcollections, lower RBI dividend transfer and also higherexpenditure, where government has front-loaded spending and apossible stimulus to boost domestic demand.
As of August, the government has already touched 96.1per cent of its full year fiscal deficit.
Earlier this month, the Reserve Bank had warnedagainst any slippages in the fiscal math, saying it will stokeinflation and also hurt the macroeconomic stability.
"The national fiscal stance can hardly be described astight...In other words, we should be very cautious lest fiscalactions undercut macroeconomic stability," Governor UrjitPatel had said.
It can be noted that the global rating agencies alsotake a very negative view of any slippage on the fiscal frontand have in the past warned about cutting the sovereign ratingto junk status for fiscal imprudence.
The UBS report said states are also likely to exceedtheir targets because of factors like the rash of farm loanwaiver announcements and a jump in employee salaries as theyimplement new wage panel recommendations.
The combined fiscal deficit, including that of thestates and the Centre will come at 6.7 per cent, as againstgovernment target of 5.8 per cent and 6.2 per cent a year ago,the report said.
The brokerage said structural reforms likedemonetisation, introduction of GST and corporate deleveraginghave resulted in the lower growth, even as the underlyingdomestic demand momentum remains weak.
On growth, it said a pick up to the oft-repeated wishof 8 per cent will require an investment cycle recovery, forwhich the quality of government spending is key to ensuringthere is no crowding out.
"We believe any increase in government spending toboost consumption could crowd out investment, which tends tohave a durable impact on overall growth," it explained.
Estimating for a 0.25 per cent cut in rates by RBIduring the remainder of the year, it warned that worsening infiscal position and compromising in the quality of publicspending could "exert pressure on prices and delay thepossibility of any rate cut by the MPC". PTI AA BENGK.
This is unedited, unformatted feed from the Press Trust of India wire.