India Insight:Fiscal deficit on track;capital spending remains buoyant

Fiscal deficit reached 88% of the government’s budget estimate (BE)during April-December 2015 (FYTD): This compares with near 100%registered in April-December 2014. The cumulative fiscal deficit has reached3.5% of GDP FYTD (vs. the budget estimate of 3.9% of GDP for FY16).

Capex spending up, revenue spending down in December: Centralgovernment expenditure was up +5.8%YoY in December and+6.3%YoYFYTD (below the BE of 8% YoY for FY16). Looking at the breakup,capital expenditure remained buoyant, growing by +50%YoY in Decemberand +33.5%YoY FYTD (above BE of 29% for FY16). Revenue expenditure,on the other hand, declined by 0.1%YoY in December partly on base effectbut was up +3%FYTD (below the BE of 5%YoY). The increase in spending inDecember was largely led by higher allocation to the ministry of defence,ministry of finance mainly towards interest payments, ministry of chemicals &fertilizers towards subsidy payments and ministry of road transport.

Gross revenue collections picks up in December: The centralgovernment's gross tax collection grew 22%YoY in December and was up21%YoY FYTD (well above the BE of 16%YoY). Indirect tax collection growthremained strong at 39%YoY FYTD (vs. the BE of +16%) largely led by higherexcise and customs duty collection even as service tax collection lags. Thedirect tax collection, on the other hand, grew 11%YoY FYTD (below BE of15%YoY) as growth in personal income tax collection lagged on weakdomestic demand. However, taking into account assignment to states, net taxcollection was up 14%YoY FYTD, well above BE of 2%YoY.