Fiscal deficit to worsen prior to 2019 elections

Oil prices, trade wars and populist spending are keeping investors on tenterhooks

Salil Panchal
Published: Aug 27, 2018 11:24:18 AM IST
Updated: Aug 28, 2018 11:40:46 AM IST

Life is not a template and neither is mine. Like several who have worked as journalists, I am a generalist in my over two decade experience across print, global news wires and dotcom firms. But there has been one underlying theme in each phase; life gave me the chance to observe and tell a story -- from early days tracking a securities scam to terror attacks and some of India's most significant court trials. Besides writing, I have jumped fences to become an entrepreneur, as an investment advisor -- and also taught the finer aspects of business journalism to young minds. At Forbes India, I also keep an eye on some of its proprietary specials like the Rich list, GenNext and Celebrity lists. An alumnus of Xavier Institute of Communications and H.R College of Commerce and Economics in Mumbai, I have worked for organisations such as Agence France-Presse, Business Standard, The Financial Express and The Times of India prior to this.

g_108657_bg_oilbarrels_280x210.jpgImage: plus49/Construction Photography/Avalon/Getty Images

At a time when India’s growth rate has been under pressure—it grew 6.7 percent in FY18—there could be some more bad news on the way. Deteriorating macroeconomic concerns—rising oil prices and trade wars—are starting to grow. India, which faces a current and fiscal deficit, could see greater volatility in the financial markets and the downside risk of its growth outlook.


In a note to clients dated August 8, UBS Securities economist Tanvee Gupta Jain and analyst Gautam Chhaochharia wrote they “see a risk that the combined fiscal deficit will remain elevated, at 6.5 percent of GDP in FY19”, compared to the government’s estimate of 5.9 percent. Factors such as lower-thanexpected GST collection, rising fiscal deficit of states, and higher populist spending could keep investors on tenterhooks. Government spending is expected to continue, thus delaying recovery in the investment cycle. The Reserve Bank of India has hiked interest rates twice, and another is unlikely until early 2019. But a worsening fiscal situation and inflationary pressures could prompt it to do so.

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