India’s combined fiscal deficit is likely to reduce slightly to 10.3 percent of the country’s gross domestic product (GDP) in the coming fiscal year starting April 1, from 10.8 percent in 2008/09, Nomura said in research note on Tuesday.
The government’s gross market borrowing is seen at $83 billion in FY10, compared with the government’s estimate of 3.62 trillion rupees ($70.1 billion).
Nomura also expects the government to announce an additional 0.6 percent of GDP of planned expenditure at its final budget in June/July.
“On the fiscal policy front, little is likely to happen until after the May elections because the election code of conduct,” Varma of Nomura wrote.
Nomura expects the central bank to further reduce its key short-term interest rates by 100 basis points each in tranches of 50 bps between April and June.
“We judge that the reluctance of banks to cut rates and lend, and a heavily geared government are diluting the transmission of stimulus to the economy,” the note said.
“The bottomline is that the policy action is nearly over; policy effectivemenss is now the key,” Varma wrote.
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