India’s fiscal profile better placed to fight global economic shocks, says analyst

India’s fiscal profile has become structurally healthy amid better tax compliance, improved base and focus on quality spending, as per Emkay Global Financial Services.

A healthy twin deficit shields India from massive emerging market shocks in case the global cycle turns averse, it said.

There should be no divergence from fiscal targets unless there is a global or domestic shock. Meanwhile, CAD/GDP has averaged 1.3 per cent since Covid, even with Brent at $85 a barrel.

There has been massive fiscal consolidation since Covid, and policy remains focused on improving growth potential, including boosting investment dynamics while maintaining fiscal discipline, the brokerage said.

For India, massive growth upside surprises post-COVID-normalisation are owing, in parts, to better domestic demand led by policy-driven investment and exports, in turn led by better global growth. To top this, the softening of inflation is providing a tailwind to growth impulses.

The next leg of growth prospects will be influenced by the pace of private consumption and capex recovery, global growth and rates cycle, and geopolitical noises, the brokerage said.

“We expect FY25 GDP growth to moderate to 6.5 per cent, with slowing manufacturing and an unexciting consumption story, while inflation will ease to 4.6 per cent led by core coming off to 3.7 per cent,” it added.