Siddhartha Sanyal, Chief India Economist, Barclays says there is a lot of foreign institutional investor (FII) interest in fixed income instruments and the government should launch these soon in order to pool in significant capital.
In an interview to CNBC-TV18, Sanyal says areas like defence and railways can get a lot of capital by means of bonds.
Furthermore, Sanyal expects the real growth rate for FY16 to be at 7.8 percent; WPI inflation at 3 percent and revenue growth in the low teens.
Below is the verbatim transcript of the interview to CNBC-TV18.
Reema: On one hand they are saying that at least for the near term to boost growth and revitalise growth there is a need for that but you have to balance it with fiscal deficit, fiscal discipline and they have also indicated that the government will adhere to its medium-term fiscal deficit target. So therefore what can we expect form the Union Budget tomorrow? Can we expect some relaxations in the fiscal deficit targets or not?
A: I do not expect that and I do not necessarily see any conflict in the statements what they have made and I tend to agree a lot Dr Chaudhuri what he mentioned just now. Basically what is happening now if you see the effect of lower petroleum prices that itself is giving the government a benefit close to one percentage point of the gross domestic product (GDP) as per our estimate. We are factoring in FY16 fuel subsidy to be lower by around Rs 50,000 crore and the higher excise duty on petroleum products can be anywhere around Rs 60,000 -70,000 crore for the full year. As a whole we are talking about a number close to around Rs 1,20,000 crore for the full year benefits only from the petroleum affect which is one percent of the GDP.
Now you can channelise this expenditure much more meaningfully towards some of the more productive investments. If you see in terms of some other numbers fiscal deficit to meet 4.1percnet fiscal deficit will be around Rs 5,30,000 crore. To meet 3.6 percent next year we are talking about something like Rs 5,00,000 crore so you to eventually stable out Rs 30,000 crore odd you have a buffer of around Rs 1,20,000 crore that is a very meaningful buffer.
The other part of the story we all talk about the revenue buoyancy or the revenue linkage with growth. The other part which we tend to miss out is the benefit the fiscal headlines the fiscal numbers can get from a lower inflationary situation. A lot of government’s expenditure is actually due to wages or salary which are inflation-linked, interest out go as well as subsides etc which we mentioned and project cost overrun so all these things will enjoy very significant tailwinds going ahead.