New Delhi: Leading global financial entities Moody's and Barclays Capital expect the Government to partially roll back the stimulus packages in the forthcoming Budget, after the Reserve Bank asked the Centre to withdraw some of these measures to bring about fiscal consolidation.
"The improving data on private demand is likely to encourage policymakers to gradually withdraw the stimulus measures. The RBI has already begun its exit strategy...fiscal authorities may opt to consolidate the public sector deficit in the upcoming Budget," Moody's Economy.com said today.
Finance Minister Pranab Mukherjee will present the Budget on February 26 this year, against the traditional last day of the month which this year being a holiday.
At the very least, authorities are likely to ensure that spending growth is modest enough so that the public sector deficit comes down from its current extraordinarily high levels, near 10 percent of GDP on a combined Union and state basis, said Moody's Economy.com associate economist Nikhilesh Bhattacharyya.
"Rising external demand should also prompt policymakers to withdraw stimulus, which is necessary to ensure private sector borrowing is not crowded out and high inflation does not persist. The US and Euro Zone appear to have begun gradual recoveries, while emerging market demand is rapidly recovering, especially in neighbouring China," he said.
Barclays Capital also said, "in the upcoming Budget, we expect the Government to pull back some of the fiscal support measures that were provided to domestic industry and export-oriented manufacturers."
"Given the upward bias to GDP growth (9 percent) and additional divestment proceeds (Rs 2,5000 crore), the fiscal deficit could be reduced to as low as 3.8 per cent of GDP. The postponement of the 3G auction could be a source of further improvement," the Barclays report said.
Fiscal deficit is projected to reach 6.8 percent in the current fiscal compared to 6.2 per cent in the last fiscal. Next fiscal, the Government has indicated to have fiscal deficit of 5.5 percent.
The report further said recent industry-level data suggest that capital spending is likely to accelerate in the next fiscal, as ongoing and recently announced projects for next year amount to more than $1 trillion (over Rs 46 lakh crore).
The Government has cut excise duty by 6 per cent, service tax by 2 per cent and stepped up plan expenditure to provide stimulus to slowing down economy.
After tightening its noose over money supply, the Reserve Bank also asked the Government to partially roll back stimulus to have fiscal consolidation. But, the industry is dead against a sudden withdrawal of stimulus saying, it should continue till growth is on a firm footing.
In its second term, the UPA Government has so far made divestment in NHPC and Oil India. Tomorrow, NTPC issue would open. Besides, REC, NMDC and SJVNL issues would come up this fiscal.
PTI
First Published: Tuesday, February 02, 2010, 20:56