India: A ‘pause’ in FY18 and a ‘modest’ fiscal consolidation in FY19 - Nomura

Indian government’s Economic Survey – a precursor to the Budget presentation on 1 February – indicated that a ‘pause’ in fiscal consolidation cannot be ruled out in FY18, notes the research team at Nomura.

Key Quotes

“It cautioned against ‘ambitious’ consolidation in FY19, as it could hurt credibility, and instead argued for a ‘modest’ consolidation. This reduces the likelihood of a positive surprise in the Budget (fiscal deficit target of 3% of GDP in FY19) and increases the probability of our baseline fiscal deficit projection being announced (3.5% of GDP in FY18, same as FY17, and a lower 3.2% in FY19). Elsewhere, the survey projects a growth recovery to 7-7.5% in FY19, from 6.75% in FY18, indicating that the rate cycle has turned.”