Interest burden may exceed fiscal deficit in FY18, first time in a decade

Higher interest payment, increased subsidy burden and higher allowances on pay revisions are factors that will put pressure on government’s total expenditure


FY18 will be the first year since FY08 that the government’s interest payment burden will be larger than its fiscal deficit, Standard Chartered Research estimates. Graphic by Subrata Jana/Mint
FY18 will be the first year since FY08 that the government’s interest payment burden will be larger than its fiscal deficit, Standard Chartered Research estimates. Graphic by Subrata Jana/Mint

India’s fiscal deficit has narrowed in the past few years but a similar decline in interest payment seems unlikely.

Standard Chartered Research estimates FY18 will be the first year since FY08 that the government’s interest payment burden will be larger than its fiscal deficit.

In a recent report, it said, “interest payment on outstanding government debt and increased market stabilization scheme bonds will put significant pressure on India’s fiscal deficit.”

Higher interest payment, increased subsidy burden and higher allowances on pay revisions are factors that will put pressure on government’s total expenditure, added the report which states its expectations from the budget.

Power sector gets Moody’s upgrade

Moody’s Investors Service and its affiliate ICRA Ltd have changed the outlook for the power sector from negative to stable. Increased domestic production of coal will ease fuel constraints, Abhishek Tyagi, vice-president and senior analyst at Moody’s, said in a statement.

Moody’s expects the government’s debt restructuring scheme for state electricity boards, the largest buyers of power, to improve the financial profile of the utilities.

According to the ratings group, this can pare receivables cycle of power producers and lead to a modest improvement in plant load factor, which has seen a steady drop in recent years, in 18 months.

Private insurers’ growth tops that of LIC

Demonetisation appears to have come as a shot in the arm for the insurance sector. Insurance premium paid by individuals in December rose 17% from a year ago, with a big boost visible among private insurers, whose growth during the month topped that of the industry.

State-owned Life Insurance Corp. of India (LIC) did better in the month of November, when demonetisation was announced.

In any case, growth in insurance premium paid is a robust 20% in the nine months to December.

Private insurers’ market share continued to grow, even through the demonetisation phase. In December, it was 53% of the total, while LIC’s share was lower at 47%.

Within private insurers, the bank-led insurers have been growing faster. Perhaps, a captive customer base and the ability to offer allied financial services under one roof give them an edge.

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