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No room for extra spending despite growth in indirect taxes
October, 07th 2015

The Indian government does not have much room to expand spending beyond the budgetary allocations despite the handsome growth in indirect taxes in the first five months of the fiscal year, Japanese investment bank Nomura said on Tuesday.

In a report titled 'No room for extra spending' Nomura economists Sonal Varma and Neha Saraf said India's government cannot accelerate capital spending because of a slower than budgeted direct tax growth as also as the government's planned divestment is lagging behind targets.

During the first five months (April-August) of of the current fiscal year ending March 2016, indirect taxes rose by 36.2 per cent year on year almost two times the budgeted target growth of around 19 per cent.

However, the growth in direct taxes has been poor at just 8.5 per cent year on year in the same period almost half of the targeted 16.1 per cent growth. Weak disinvestment receipts over this period (Rs12,800 crore) also raise the risks of a shortfall (FY16 target: Rs 69,500 crore)," Nomura said.

"While indirect tax collections have been buoyant, we expect them to largely compensate for the potential shortfalls in direct taxes and disinvestment targets. Yesterday, the government also announced that it expects a 5-7 per cent shortfall in direct tax collections ( around 50,000 crore or 0.4 per cent of GDP). As such, we do not expect any fiscal space to open up to spend above budgeted amounts," Nomura added.

Government spending has already accelerated (up 8.8 per cent year-on-year in April-August versus budgeted growth of 8.1 per cent), led by higher public spending on infrastructure, particularly roads, rural and urban development, reflecting the government's effort to front-load spending to kick-start growth. But there is no space to accelerate this spending, Nomura said.

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