New Delhi: India is likely to stick to its fiscal deficit target of 3.2% of gross domestic product (GDP), and may accelerate sales of government stakes in lenders and other firms as part of an effort to recapitalize banks, an adviser to the prime minister said on Tuesday.
PM Narendra Modi’s government has already used up nearly all of its budget for the current fiscal 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 the Prime MInister’s Economic Advisory Council, said in an interview, that the government had stuck to its 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 Rs50,000 crore might be in works—one that would widen the deficit to 3.7% of GDP.
Growth slipped to its lowest level in three years in the first quarter, logging an annual rate of 5.7%, but Bhalla said there are signs of recovery. “I am more optimistic on the economy than I was two weeks ago," he said, adding last week’s industrial output and export data suggested fears about a slowdown were exaggerated.
He said growth could be close to 6.5% for FY18, though it is lower than the central bank’s latest estimate of 6.7%