Halister News

(Bloomberg) -- One-off inflows may help India keep a lid on its budget deficit even as the gap balloons to 84% of target within six months of the fiscal year, analysts say, adding that this should help support bonds.

• Inflows from share sales of state-run units, auction of airwaves and a tax amnesty scheme may help keep a rein on the short-fall, analysts at Nomura, DBS and Kotak Mahindra Bank say
• Capital Economics, however, sees the deficit widening to 3.7% of GDP versus 3.5% budgeted in FY17
• April-September budget deficit widened to 84% of full fiscal year target vs 68.1% in the previous year
  • That’s the highest first half deficit in nearly two decades, according to Business Standard
• Govt has sold shares worth 214b rupees out of a budgeted 565b rupees via divestment so far this fiscal year
• 652.5b rupees declared under tax amnesty plan, Finance Minister Jaitley says
• 10-year bond yield has dropped 66bps in this fiscal year, helped by RBI’s shift to a neutral liquidity stance and 50bps of rate cuts

Key Views:

• DBS (Radhika Rao, economist)
• One-off receipts are likely to offset trailing direct tax collections while indirect revenues get a hand from fuel- based excise duties; fiscal targets unlikely to be missed
• Govt has “very limited” room to maneuver in 2H of fiscal year; expenditure need to be curtailed if revenues fail to catch-up

• Kotak Mahindra (Madhavi Arora, economist)
  • Likely to see some improvement in receipts due to tax amnesty inflows, divestment and telecom spectrum proceeds
  • Expenditure has to be tapered to keep deficit under budgeted targets for FY17
  • Unless the govt increases bond supply as against the budgeted estimate on account of any fiscal slippage, such monthly lumpy fiscal numbers may not be material for the bond market

• Capital Economics (Shilan Shah, economist)
• There are pressures on the spending side that could result in the govt having to loosen its fiscal targets, which could lead to a rise in bond yields over the coming months
• Expects a slight loosening to 3.7% of GDP for FY17

• Nomura (Sonal Varma, economist)
  • Depending on the disinvestment receipts in the second half, some expenditure squeeze might become necessary, but expect 3.5% will be met
  • Authorities are quite committed to 3.5% target