MUMBAI: Call it India’s serendipitous stimulus.

Indirect tax receipts jumped 37 per cent in May from a year earlier, the most since 2011, government data showed this week. The budget deficit reached 37.5pc of the full-year target through April and May, compared with 45.3pc in the same period a year ago.

The positive trend two months into the fiscal year signals that India’s economy is poised for quicker growth, giving investors a bright spot as China slows and Europe frets about Greece. Extra cash would give Prime Minister Narendra Modi ammunition to boost spending in the face of global market turbulence without putting his deficit target at risk.

“When you see indirect taxes picking up in India, it shows that the government finally has some fiscal room to actually spend money,” said Rahul Bajoria, a Singapore-based regional economist at Barclays Plc. He estimated Modi could use the cash to add as much as 0.3 percentage points to growth. India’s 10-year sovereign bonds have been Asia’s best performers over the past year with returns of 12.5pc as government finances improve. The rupee weakened 6.1pc during the period.

It’s more important than ever for Modi to drive economic expansion. One of Asia’s highest borrowing costs and banks saddled with bad loans has crimped private investment.

By arrangement with Washington Post-Bloomberg News Service

Published in Dawn, July 5th, 2015

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