Nomura warns against stimulus, blames fiscal stress on higher

Amid reports of a fiscal stimulus to boost the sagging economy, a foreign brokerage has warned the present macro problems are due to higher spending and not lack of it and also not due to low revenue receipts and hence a pump priming maybe counterproductive this time around.

"The fiscal stress is more a result of excess spending thus far, which has not left much room for spending in the remaining months: it can rise only 1.5 per cent y-o-y in August-March versus 23.1 per cent in April-July to meet the FY18 budgeted spending target.

"Therefore, a fiscal stimulus may not be so much to boost growth as to prevent a bigger drag," Nomura India chief economist Sonal Verma has said in a report.

Noting that the current fiscal trends suggest spending is to blame, not revenue, she said revenue collection for April-July was only 2.1 per cent below the historical run- rate, but better than in recent years.

"We expect some revenue shortfall on telecom receipts, disinvestment and dividends, but the buoyancy in direct tax collections suggests the overall revenue miss should not be large. Despite teething issues, GST should lead to higher revenues as it has been inflationary," she said.

Expenditures, on the other hand, are off the charts, with the Central government spending 7.5 per cent above the historical run-rate, the report said.

The government has spent 37.7 per cent of its budgeted target, even exceeding the 2008/09 run-rate (the year of stimulus), to offset the impact of note ban and GST, said the brokerage.

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