India’s fiscal deficit is likely to reduce to 3.7 per cent of GDP by financial year 2018 and the consolidation process would be gradual, says a Deutsche Bank report. As per the global financial services major, in the path of fiscal consolidation, the easy part is done while the hard work is ahead.
“It will be an uphill task to reduce the headline fiscal deficit to 3 per cent of GDP by FY18, unless such consolidation is supported by a strong pick-up in revenue, particularly tax revenue,” the report said.
“We are forecasting fiscal deficit for FY17 to be 3.8 per cent of GDP, improving modestly thereafter to 3.7 per cent of GDP in FY18”, it added.
The report noted that in order to achieve the medium term goal, the authorities would need to push fiscal deficit down to 3.5 per cent of GDP in the next fiscal year (FY17), which “we think would be challenging given the sluggish economic recovery”, it said.
“In order to achieve sustainable fiscal consolidation, the authorities would have to take far reaching and politically challenging revenue and spending reforms, the report said, adding that ‘they (the authorities) are barely at the early stages of this daunting journey.”