Agencies
New Delhi, Oct 17: India is likely to stick to its fiscal deficit target of 3.2 per cent of GDP, and may accelerate sales of government stakes in lenders and other companies as part of an effort to recapitalize banks, an adviser to the prime minister said Tuesday.
Prime Minister Narendra Modi’s government has already used up nearly all of its budget for the current fiscal year and tax revenues are expected to fall far short of initial expectations. At the same time economic growth has slowed, sparking calls for more stimulus.
But Surjit Bhalla, a member of Modi’s Economic Advisory Council, said that the government had stuck to its fiscal deficit targets over the past three years and is expected to do so this year as well.
The central bank has warned that missing the fiscal deficit target could lead to a spike in inflation, hurting macroeconomic stability. Indian stocks slid last month on reports that a stimulus package worth up to Rs500 billion might be in the works — one that would widen the deficit to 3.7 per cent of GDP.
Economic growth slipped to its lowest in three years in the first quarter, logging an annual rate of 5.7 per cent, but Bhalla said there were signs of recovery.
“I am more optimistic on the economy than I was two weeks ago,” he said and added that last week’s industrial output and export data suggested fears about a slowdown were exaggerated.
Bhalla said GDP growth could be close to 6.5 per cent for the fiscal year (The RBI’s revised forecast is 6.7 per cent).
Modi formed the Economic Advisory Council last month to address issues of macroeconomic importance and present its views to the prime minister. Bhalla said the council’s views on the fiscal deficit has been communicated to the government by its chairman, Bibek Debroy.
Sour loans in India’s banking sector hit a record 9.5 trillion rupees ($146 billion) at the end of June with stressed loans as a percentage of total loans at 12.6 percent – the highest level in at least 15 years.
That represents a major problem for the economy as provisions eat into profits and new lending is choked off. The bulk of the sector’s bad loans are held by the country’s 21 state-run banks.
