Pushing growth over fiscal discipline to be counter-productive: HSBC

The government's likely approach of giving priority to growth numbers at the expense of fiscal consolidation could prove “counter-productive”, says HSBC.

Underweight on India, the global brokerage firm today said in a report that despite the recent sell-off in Indian equities, there remains a mismatch between expectations and reality, which has not been “fully priced in”.
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The best outcome would be for policymakers to stick to the fiscal consolidation target, while providing funds for selected growth initiatives, it said. However, it added that due to the contentious nature of fiscal reforms that are needed, the government might prefer to tilt the balance towards attempts to boost growth at the expense of fiscal consolidation.
 
“We think opting for growth over fiscal discipline could prove counter-productive because it may hurt market confidence as a bigger fiscal deficit will lead to higher government borrowings and higher bond yields; this, in turn, might reduce the scope for rate cuts,” the report said.