Qatar National Bank said Saturday that it Expects India's large public investment, reduction of subsidy and the introduction of service tax to help the South-Eastern country achieve growth rates of around 8%.
In its weekly report published today, QNB said that the Indian governments is looking to achieve deficit targets of 4.1% of GDP in 2014/2015 down by 0.3% compared to the previous year. QNB attributed the decline largely to India's reduction of subsidies and the lower global commodity prices which reduced government outlays.
Going forward, the government is targeting a deficit of 3.9% of GDP in 2015/16 and expects to reach its deficit target of 3.0% in 2017/18. Those targets led to medium-term fiscal strategies by the Indian government that are "growth friendly," according to the report. QNB cited higher share of capital spending as an example of "growth friendly" products.
The report then moved on to discuss three policies in detail that would help the Indian government achieve its target. On public spending, QNB said budget projects a 25.5% increase in capital spending to address these bottlenecks directly through increased public investment in transport infrastructure (railways and roads). The Qatari bank attributed supply bottlenecks as "One of the key reasons behind the underperformance of the Indian economy in recent years." The report then moved to discussing reducing subsidy bills. The report said that the governments plans to decrease spending in that area by 8.6% in the coming fiscal year is partly due to the fall in price of oil. Additionally, the government found more efficient ways to deliver the subsidies and cut down the costs.
Finally, the report discussed the introduction of federal goods and services tax (GST). The government has restated its commitment to implement a uniform federal GST by April 2016. A uniform federal GST is expected to be fiscally neutral for the general government. However the tax, according to QNB, will have a positive impact on growth by eliminating state borders and therefore creating a single Indian market for goods and services.