According to a report released by India’s largest bank, SBI (State Bank of India), the Central government’s capital spending could fall by as much as Rs 700 billion this financial year (FY19), as reported by Business Standard. This represents one-fourth of the Centre’s outlay for capital expenditure.
This cut would be necessitated due to weaker GST (Goods and Services Tax) collections in the year and rising CAD (Current Account Deficit) because of increased oil prices in the past few months. This decrease in spending is twice the Rs 363 billion shortfalls that the government had to incur last year.
“Coupled with an “inevitable” slowdown in global growth, this would have a substantial impact on India’s GDP growth,” said Soumya Kanti Ghosh, group chief economic adviser at SBI, and the author of the report.
Though the report stated that growth in the fourth quarter of FY19 could well go below 7 per cent, various independent economists have forecasted growth rates between 7.2-7.9 per cent in Q2.
The government has had to undertake such cuts in capital expenditure to meet the fiscal deficit targets set by the financial budgets of the respective years. Continuously missing fiscal deficit targets dampen investor sentiment as it creates uncertainty in the markets and leads to a flight of capital from the country.
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