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‘Meeting fiscal deficit target of 4.1% looks challenging’

Meeting the budgeted fiscal deficit target of 4.1 percent of GDP for the current financial year looks “challenging”, says Japanese brokerage firm Nomura.

According to the global financial services major, India’s fiscal arithmetic has got tougher, mainly because of lower revenue collection this year and it believes that the government would go for sharp spending cuts in the months to come.

As per the data released by Controller General of Accounts yesterday, India’s fiscal deficit during the April- November period was 98.9 per cent of the 2014-15 estimate, primarily on account of subdued revenue realisation.

“The government’s fiscal finances were in a similar situation last year,” Sonal Varma, executive director – India economist at Nomura said in a research note.

“The difference is that while spending was higher and revenues lower last year, only lower revenues (and not higher spending) are responsible for this year’s tight fiscal situation,” Varma added.

Fiscal deficit – the gap between government expenditure and revenue – during the same period last year was 93.9 per cent of that year’s target.

“In our view, even if disinvestment picks up, achieving the 4.1 percent of GDP target would require sharp expenditure cuts, delayed payments (tax refunds) and higher dividends from public sector companies in the next three months,” Varma said, adding that “the quality of fiscal consolidation will likely suffer again”.

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