Vote on Account 2014: Chidambaram likely to meet FY'14 fiscal deficit target, says Standard Chartered

MUMBAI: The interim budget for the coming financial year will be tabled on February 17. It comes against a complex backdrop of a tough macroeconomic environment, pressure to adhere to the fiscal consolidation plan and impending general elections in April-May 2014, says Standard Chartered report.

According to analysts at the brokerage, finance minister P Chidambaram is likely to meet the fiscal deficit target of 4.8 per cent of the GDP for FY14, which he has defined as the “red line”.

As in FY13, the finance minister is likely to cut expenditure to meet the fiscal deficit target.

The government has reduced plan expenditure by Rs 90,000 crore in the last four months of FY13, surprising the market.

“He demonstrated his ability to meet deficit targets amid tough macroeconomic conditions in FY13, although the quality of fiscal consolidation remains less than desired. Major policy announcements for FY15 are unlikely given that the current government will be in office for only a short time. The finance minister will present an interim budget for FY15 on February 17, which will be reviewed in July once the new government is in power. As a result, the market is likely to adopt a cautious view of next week’s announcement,” analysts Anubhuti Sahay and Nagaraj Kulkarni said in the report.

However, market participants will closely watch the FY15 fiscal deficit target, which will determine the size of market borrowing for the next fiscal year.

The target is widely expected to be set at 4.2 per cent of the GDP, in line with the fiscal consolidation plan outlined in October 2012.

The finance minister committed at that time to reducing the fiscal deficit by 0.6 per cent of the GDP, annually; he is unlikely to deviate from this plan in his final budget.

“The new government to be formed after elections will have the option of revisiting the deficit target and borrowing plans for FY15. This means the borrowing laid out in the interim budget will be valid only for Q1FY15, if the new government revises the FY15 fiscal deficit projections,” the report said.