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Written by 9:07 am Economy

Nomura raises concerns over declining government spending in India

Nomura has flagged concerns over declining government spending which could be negative for India’s investment outlook.

As of Q2 (July-September), revex (revenue expenditure) growth fell to 4.4 per cent y-o-y from 33.3 per cent in August and capex was -2.4 per cent, albeit improving from -30 per cent in August. As of H1 FY25, revex is tracking 4.2 per cent vs the budgeted target of 6.2 per cent.

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“Capex (capital expenditure) is more concerning – down by 15 per cent thus far vs the budgeted growth of 17 per cent, implying the need to grow by a vast 52 per cent in H2 if the annual target is to be met. Public capex shortfall when private capex remains uneven and weak would be negative for the investment outlook,” Nomura said.

Revex growth recovery seems more feasible, and positive for government consumption GDP. We see a downside risk to our FY25 growth forecast of 6.7 per cent (RBI: 7.2 per cent).

“That said, there is good news for fiscal. If capex were to grow by say, 30 per cent in H2 FY25 (vs the required 52 per cent), there could be fiscal savings of 0.3 per cent of GDP. On the revenue side, corporate tax collections are trailing, but higher income tax collections should help bridge much of that shortfall. Thus, we think there could be a positive surprise to the FY25 fiscal deficit target of 4.9 per cent of GDP,” Nomura added.

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