Govt unveils austerity measures to meet deficit target

Prime Minister Manmohan Singh gestures during the national communal harmony awards ceremony in New Delhi August 12, 2009.

NEW DELHI (Reuters) - The government on Monday announced austerity measures, including a ban on meetings in five-star hotels and restrictions on foreign travel, as it tries to meet a fiscal deficit target.

India, under threat from a slowing economy and a rising subsidy bill, aims to narrow its fiscal deficit to 4.6 percent of GDP in the current fiscal year from 4.7 percent a year ago.

The government has been banking on strong economic growth to help meet its deficit target. But a spike in global oil prices and worries over a slowdown in Asia's third-largest economy could upset the fiscal calculations.

"In view of the commitment of the government to carry on the process of fiscal consolidation vigorously and to meet the fiscal and revenue deficit targets announced in the budget 2011-12, there is a need for economy and rationalisation of expenditure," the finance ministry said in a memorandum.

New Delhi has budgeted spending 1.34 trillion rupees ($30.1 billion) on major subsidies, including fuel and fertilizer in the current fiscal year to end-March 2012. With oil prices showing little sign of moderation, the total spending is expected to be much higher than budgeted levels.

India's decision to raise fuel prices last month is expected to trim revenue losses for state-run oil companies by just 50 billion rupees, to about 1.2 trillion rupees.

Analysts say higher revenue loss for oil companies could widen the government's fiscal deficit to over 5 percent and force it to resort to higher market borrowings.

Finance ministry officials, however, have been downplaying such concerns, saying the government would devise ways to control expenditure and meet its fiscal gap target.

The memorandum instructed government departments to adhere to expenditure ceilings, refrain from buying new vehicles, and asked top bureaucrats to ensure compliance.

"Rush of expenditure towards the end of the financial year continues to be an area of concern," it said. "Not more than one-third of the budget estimates may be spent in the last quarter of the financial year."

For memorandum, click: here emre ExpMan_EcoMeasure11072011.pdf

(Reporting by Rajesh Kumar Singh; Editing by Dan Grebler)