INSUBCONTINENT EXCLUSIVE:
Meeting the fiscal deficit target of 3.5 per cent for FY2020-21 is a challenge, and the possible inflationary impact may also result in the
RBI hiking rates in the year, analysts said on Monday
They pointed out that finance minister Nirmala Sitharaman relies a lot on divestments, where the government under-performed in FY2019-20, to
achieve the 3.8 per cent fiscal deficit target
With the objective of pushing growth, the government has resorted to using a clause under which it can stretch its commitments under the
Fiscal Responsibility and Budget Management Act by 0.5 per cent, making it the third consecutive year that it has missed the target
Welcoming the government's stand, analysts at foreign brokerage Bank of America flagged risks to the target
"We see a 0.30 per cent of GDP upside risk to the fiscal deficit target given the extremely high divestment assumption of Rs 2.10 lakh
crore in FY21, almost triple of FY20's Rs 65,000 crore," it said
Analysts at Goldman Sachs said that the achievement of the government's plan hinges on privatisation initiatives, and added that if the
estimates on revenue collections do not come true, it will have to resort to expenditure cuts again
It can be noted that generally, a rise in fiscal deficits is accompanied by a spike in inflation, which is already beyond the RBI's
Goldman Sachs said the central bank will shift the stance of the monetary policy to "neutral" from "accommodative" at this week's review,
and there is a possibility of rates hikes as well in 2020
However, economists at Singapore-based DBS seemed to differ
"We look for the central bank to remain on an extended pause on rates (even as supply-induced shocks dissipate) but maintain an
accommodative bias to ensure cost of capital remains stable and favourable," they said
Analysts at BofA said against the backdrop of a "limited fiscal slippage", they expect a second dovish pause from the RBI MPC on Thursday
as the headline inflation is likely to fall to 6.7 per cent in January.