Populist policies by the central government in the run-up to the general elections next year, can lead to a widening of fiscal deficit and restrict the ability of companies to grow, according to Tirthankar Patnaik of Mizuho Bank.
Pointing to the recent 19-day freeze in fuel prices ahead of the Karnataka assembly polls, Patnaik said that if the government does not pass on the impact of rising international oil prices naturally to the consumer, the fiscal deficit could widen. Petrol and diesel prices were hiked for the eighth straight day today in the range of 33-34 paise and 25-27 paise, respectively, across four metro cities.
Higher oil prices will push up the current account deficit and can find its way into the fiscal deficit as well, Patnaik, India strategist at the Japanese lender, told BloombergQuint in an interview. And “rising fiscal deficit will definitely be an overhang for the markets”, he added.
Corporate earnings estimates for the ongoing financial year could also see a downgrade if there is a sustained deterioration of macroeconomic indicators, he said.
Watch the full interview here: