Moneycontrol
Feb 19, 2016 09:58 AM IST | Source: Moneycontrol.com

Govt must look beyond deficit to boost infra, growth: StanC

Standard Chartered in a report titled ‘India- all eyes on Budget‘ says that "if the government adheres to its original plan, adopting alternative policies could mitigate growth headwinds, in our view.”

Govt must look beyond deficit to boost infra, growth: StanC

Moneycontrol Bureau

With all eyes on the upcoming Budget, scheduled for February 29, Standard Chartered in a report titled ‘India- All eyes on budget’ lists down one of the key issues that should lie high on the government’s priority list.

One key issue, which will be closely watched for is the Finance Minister’s fiscal consolidation plan, says the report. It adds that there are merits in adhering to original plan on back of current global market volatility.

India’ s original plan targeted a fiscal deficit of 3.5 percent of Gross Domestic Product for FY17 and 3.0 percent for FY18. However, recent developments and slow growth has cast shadows on the decided levels for the next financial year.

Revising the plan for a second year could erode investor confidence in the government and may also result in “negative impact on the aggregate fiscal deficit and public debt, if states, which have been fiscally prudent so far, decide to follow a similar path,” it says.

Discussing the ways to mitigate headwinds, the report mentions: “If the government adheres to its original plan, adopting alternative policies could mitigate growth headwinds, in our view.”

With a limited space, it has become essential to tap alternative sources of funding for public investment for coming years. The research report expects earlier promised measures to reap fruits this year. It also expects National Infrastructure Investment Fund (NIIF) to become operational in FY17.

The report further says that any positive announcement from the government will push INR bond market to help infrastructure investment.

An announcement on lines of credit enhancement facilities, which are in range on 20-50 percent, will be another catalyst.

Another key instrument for improving infrastructure investment could be “a roadmap on the strategic divestment of selected Public Sector Units.”

Setting up of a Guarantee Fund of India (BGFI) could further improve the investment situation for the government, says the report. 

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