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HSBC sees no space for fiscal stimulus

The brokerage expects India’s GDP to grow at 5.7 per cent in FY20.

ET Bureau|
Sep 13, 2019, 07.35 AM IST
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The recovery in growth is likely to be soft.
Mumbai: The Indian government has no space for a fiscal stimulus given that public sector borrowings are already elevated, foreign brokerage HSBC said.

Even without a stimulus package, there is pressure on meeting the current year’s fiscal deficit target, it said. Tax revenue is expected to be much below target and the Reserve Bank of India’s dividend transfer is unlikely to fill the shortfall, the brokerage said.

HSBC said that instead of cutting expenditure to meet the deficit target towards the end of the year, the government will go for a wider fiscal deficit of 3.5 per cent of GDP for FY20 against the budgeted deficit of 3.3 per cent.

The brokerage expects India’s GDP to grow at 5.7 per cent in FY20, lower than its earlier expectation of 6.4 per cent. HSBC forecasts GDP will grow at 6.4 per cent in FY21 compared with the previous estimate of 6.8 per cent. India’s economy expanded at a six-year low of 5 per cent in the three months ended June.

The recovery in growth is likely to be soft, led by the banking sector and focused on consumption unless the government steps up capital expenditure, said HSBC.

India’s banks will lead the recovery as some of them come out of a clean-up, with much of the policy response such as rate cuts, liquidity injection and recapitalisation directed at them, according to HSBC.

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