HSBC Sees FM Arun Jaitley Stretching Fiscal Deficit Target To 3.8% In FY17

Foreign brokerage HSBC said Finance Minister Arun Jaitley is likely to stretch the fiscal deficit target to 3.8 per cent of GDP for the next fiscal from the earlier commitment of 3.5 per cent. We believe the government, facing mounting spending pressure such as a higher wage bill, may choose to sign up for a wider deficit of 3.8 per cent of GDP,” HSBC India Chief Economist Pranjul Bhandari said in a note. Stating that addressing the worries on growth is possible even if the government sticks to the 3.5 per cent target, she warned that wider fiscal deficit numbers may hurt growth over a longer period as the government’s borrowing will crowd out private sector demand. “The net impact on growth, although positive in the short-term, could be uncertain over time, as a higher fiscal impulse could be met with some degree of crowding out,” SHE said. She further argued that “a credible discussion on the quality of spending and the future path of consolidation will become critical, especially because the FY18 target of 3 per cent is even more challenging.”

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