India said that it might have to reassess its budget deficit projections for the next fiscal year if growth slows, although higher tax revenue would offset a shortfall in asset sales and help meet this year’s target.
The government’s steps to boost taxes would help it reach its deficit target of 3.9 percent of GDP in the year through March next year, the Indian Ministry of Finance said in its mid-year review published yesterday.
The 3.5 percent goal for the following 12 months could be pressured by an expected increase in state salaries and higher military pensions, it said.
“The fiscal outlook for next year is looking challenging,” the report said. “Unless buoyancy gains continue to be registered, declining nominal GDP growth will place a stress on revenue collections.”
India’s GDP is expected to expand between 7 percent and 7.5 percent this fiscal year, Indian Minister of Finance Arun Jaitley told lawmakers this month.
While still among the fastest in the world, the pace is less than the previous forecast of 8 percent, as a gridlock in parliament stalls crucial bills and China’s slowdown jeopardizes global growth.
Bonds dropped after the report. The yield on the sovereign note due 2025 rose from 7.71 percent to 7.73 percent as of 1:04pm in Mumbai.
However, economic reform and low inflation would keep the interest rate regime “benign,” the ministry said.
International oil prices, which have more than halved over the past year, are unlikely to rise soon or dramatically, it added.
Lower crude costs benefit India, which imports about 80 percent of its oil. The central bank cut its benchmark repurchase rate four times this year to 6.75 percent and this month said it would use any space for further accommodation.
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