India: growing fiscal complexity – ANZ

According to analysts at ANZ, India’s worsening fiscal position can explain the inability of bond yields to break lower despite an unprecedented scale of liquidity infusion by the Reserve Bank of India (RBI) and expectations of further monetary easing.

Key Quotes

“The government has now deviated from the fiscal roadmap in four of its five years in tenure. The medium term fiscal deficit target of 3% of GDP, initially to be achieved in FY17 (fiscal year ending March 2017) has been pushed out to FY21 (fiscal year ending March 2021).”

“Higher off-budget funding of public capital spending has also under-stated the real extent of India’s fiscal deficit.”

“At the current run rate, the combined central-state government debt ratio of 60% can be attained by the revised timeline of FY25 as laid out in the fiscal roadmap. This is however, sensitive to the underlying assumptions, especially nominal GDP growth.”

“The current accommodative fiscal-monetary mix has not filtered through to the currency market as yet. The closure of the output gap, which will also result in a widening of the current account deficit, could well be the inflexion point.”