India likely to increase fiscal expenditures during FY 15-16

India's fiscal policy is turning more growth-supportive, in sharp contrast to the past four years of deficit compression and austerity. Given the revenue boost from rising indirect tax receipts (+35.3% y/y fiscal YTD), which reflects a surge in excise and services tax collections, expenditure momentum has picked up considerably, leading a revival in the capex cycle. 

According to fiscal data for April-July, government expenditure has risen sharply, led by a 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 government could spend up to INR1trn over and above its budgeted expenditures of INR17.8trn during FY 15-16 without posing any threat to its fiscal deficit target, estimates Barclays. 

Infrastructure spending is clearly a key priority, with outlays being raised in areas such as highways and road construction, railways, urban development, and the recapitalisation of public sector banks. This spending trend is likely to continue in the coming months, which should ensure that overall public sector capex remains strong, added Barclays.