Indian government raises FY 15-16 spending plans

India's fiscal spending is on the rise, buoyed by strong tax revenue. India's fiscal situation is showing signs of improved health. Given the revenue boost from indirect tax receipts (+35.3% y/y fiscal YTD), which reflect a surge in excise and services tax collections, expenditure momentum has picked up considerably. Feeling the fiscal force, 23 June 2015, India's fiscal policy is turning distinctly more growth supportive, and is leading a revival in capex cycle. 

According to fiscal data for April-July, government expenditure has risen sharply, led by jump in both capital and revenue spending, central government expenditure (less interest payments) has risen 35% y/y FYTD, and is at a 52-month high on a 3mma basis.

The increase in expenditure is due in part to the front-loading of government expenditures. With revenues improving, the government indicated in July that it is looking to front-load spending, prioritizing expenditure on infrastructure and bank recapitalizations. 

"Indeed, as part of its first supplementary demand for grants, the government effectively raised its FY 15-16 spending plans INR400bn (0.32% of GDP). In India, Feeling the fiscal force, the government could spend an additional INR1trn over and above its planned expenditures of INR17.8trn during FY 15-16 without posing any threat to its fiscal deficit target of 3.9% of GDP", says Barclays. 

The government seems to be approaching its windfall gains in a conservative manner by lining up some expenditures now, and it will likely put in another supplementary demand for grants in Q4 15, potentially by a similar amount as the first supplementary demand for grants.