Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the telecom sector and metal sector witnessing maximum selling pressure. Energy stocks are trading in the green.
The BSE Sensex is trading down 81 points (down 0.3%) and the NSE Nifty is trading down by 23 points (down 0.2%). The BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading up by 0.3%. The rupee is trading at 64.00 to the US$.
The Reserve Bank of India (RBI) in its annual report stated that fiscal consolidation may come under threat at the central and state level due to the immediate effects of Goods and Services Tax (GST), loan waivers, and pay revisions. The apex bank stated that these factors are likely to weigh on the overall growth matrix this year.
One must note that in the last one decade, India is making serious efforts to reduce the fiscal deficit level. Ever since the new government came in, it has been in favor of fiscal consolidation and wants to meet the long term fiscal deficit target of 3% by FY17-18. This will be the lowest target compared to the last couple of years, as can be seen from the chart below:
Fiscal Deficit target of 3% of GDP
That said, challenges remain. The demonetisation exercise has resulted in a slowdown. Further, government has announced a flurry of projects but execution is still pending.
This means, once again, the government needs to fight dual challenge. First, maintaining its stance on fiscal consolidation and sticking it fiscal deficit target of 3% of GDP for FY17-18. Second, it must relax the deficit target for reviving the economy from the shock of demonetisation.
It would be interesting to see how the government tackles these challenges ahead.
Apart from the above, the RBI report also gave some new insights on the notebandi exercise carried by the government last year. The RBI stated that coincident with the announcement of the withdrawal of Rs 500 and Rs 1,000 notes due to demonetisation, it launched a nationwide exercise to estimate the density of fake Indian currency notes (FICN) detected during the counting and verification of notes.
