Fiscal deficit shrinks as spending still at decelerated pace: Emkay

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Economy Update

Fiscal deficit shrinks as spending still at decelerated pace

n     The gross fiscal deficit shrinks to Rs1.7tn, down almost 40% yoy helped by higher tax collections and lower govt spending

n     Tax revenues for the full year may exceed the target by more than 200bn to reach Rs.5.5tn for FY11

n     The govt passed grants aggregating Rs 1,133bn (1st grant Rs683bn; 2nd grant Rs450bn), though a large part remains unspent

n     Spending from the two supplementary demand for grants would bring the fiscal deficit closer to budgeted estimate of 5.5% of GDP

Restricted spending keeps gross fiscal deficits lower by 40%yoy

The gross fiscal deficit for the first three quarters of FY11 has seen a drop by ~40% yoy

and currently stands at 45% of the budgeted estimates.

The government is seen to refrain from spending the incremental revenues it received

from the spectrum license sale and recent IPO proceeds. This has resulted in high

government balances that stood at Rs 640bn as on January 14, 2010.

…helped by higher tax collection and lower government spending

As we have been highlighting, the tax revenues for the full year may exceed the target

by more than Rs 200bn. Tax revenues are already at 73% of their FY11 target,

compared to just 66% in FY10RE.

To reach near budgeted level once the SGB money is spent

The government is yet to spend a large part of the two supplementary grants it passed,

totaling Rs 1,133bn (1st grant Rs683bn; 2nd grant Rs450bn). Once this is spent, we

would clearly see the fiscal deficit numbers, currently at ~2.5% of GDP, move closer to

the budgeted estimate of 5.5%.