India to likely miss 2012/13 fiscal deficit target: Reuters Poll

NEW DELHI/BANGALORE Wed Nov 7, 2012 5:21pm IST

An employee arranges currency notes at a cash counter inside a bank in Agartala February 18, 2010. REUTERS/Jayanta Dey/Files

An employee arranges currency notes at a cash counter inside a bank in Agartala February 18, 2010.

Credit: Reuters/Jayanta Dey/Files

NEW DELHI/BANGALORE (Reuters) - India will likely miss its revised fiscal deficit target for the financial year ending in March, a Reuters poll showed, putting a question mark over the country's efforts to avert a credit rating downgrade.

Under pressure from global rating agencies and its own central bank, the government unveiled a new plan last week to keep the fiscal deficit at 5.3 percent of gross domestic production (GDP) this financial year, higher than a previous target of 5.1 percent but lower than last year's 5.8 percent.

However, higher spending on fuel and fertilizer subsidies along with lower-than-estimated non-tax receipts are likely to keep the deficit at last year's levels, according to a poll of 21 economists.

That could force New Delhi to borrow an extra 400 billion rupees via bonds as early as December.

"Measures taken are fairly limited, like a reduction in the subsidy in diesel prices is modest ... and actual data until September shows that the revenue performance is very weak," said Andrew Kenningham, an economist at Capital Economics.

"Growth is not expected to pick up significantly this year so there is no reason to be optimistic that they are going to come near the target."

India's fiscal deficit is the widest among major emerging economies due to huge spending on subsidies for items such as food, fuel and fertilizer.

Subdued tax revenues in a slowing economy have aggravated fiscal strains and both Standard and Poor's and Fitch have placed "negative" outlooks on India's current BBB-minus ratings.

With the prospect of downgrade to junk status looming large, the government has announced a slew of reforms since mid-September, raising the price of subsidised fuel and fertilizer, and lifting the bar on foreign investment in the airline, insurance, pensions and retail sectors to shore up the flagging economy.

Although markets cheered those measures, 14 of 17 economists polled think the latest reforms would not avert a downgrade.

"There is a risk of a rating downgrade as the reforms were only a marginal correction in the fiscal situation," said Kenningham.

Despite the recent hikes in prices of fuel and fertilizer, the government's subsidy bill is expected to remain inflated.

According to the poll, spending on fuel and fertilizer subsidies is estimated to be 1.6 trillion rupees this fiscal year, higher than the 1.04 trillion rupees budgeted in March.

Under a new fiscal consolidation plan, New Delhi will focus on economizing existing expenditure and reducing waste.

It is reviewing budgeted expenditure at each ministry and plans to defer some spending to the next financial year beginning in April, which government officials say could save about 300-400 billion rupees.

But analysts doubt that will be enough to keep the deficit at 5.3 percent.

"Changes will need to have a longer-term beneficial impact on the fiscal situation, " Kenningham said, noting the government did not make any meaningful announcement last week.

To offset sluggish tax revenues, Finance Minister P. Chidambaram is banking heavily on proceeds from share sales in state-run companies and an auction of telecommunications spectrum.

He aims to raise 700 billion rupees through such sales and through the auction of cellphone airwaves. The poll showed economists expected only two-thirds of that amount, 480 billion rupees, to be raised.

Not only is a burgeoning fiscal deficit undermining the Reserve Bank of India's (RBI) efforts to control demand-driven price pressures, its funding requirements from domestic savings is crowding out private investment and lowering growth prospects.

In March, the government penciled in gross market borrowing of 5.7 trillion rupees for the 2012/13 fiscal year to help bridge a deficit earlier forecast at 5.1 percent.

However, Chidambaram last week said a revision in the fiscal deficit target would result in additional market borrowing up to the new level, which will amount to at least 200 billion rupees.

Last year, the government borrowed 929 billion rupees (22 percent) more than the budgeted amount to fund a deficit that overshot the original target by 1.2 percentage points.

(Editing by Kim Coghill)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
CommunalAward wrote:
Each state in India should have its own currency to prevent Euro type collapse.

Nov 08, 2012 5:59pm IST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Consumer Confidence Index

REUTERS SHOWCASE

Food Scandal

Food Scandal

Starbucks, Burger King dragged in as China food scandal spreads.  Full Article 

Bigger iPhones

Bigger iPhones

Apple asks suppliers to produce up to 80 mln large-screen iPhones - WSJ.  Full Article 

Gaza Conflict

Gaza Conflict

Israel keeps up Gaza assaults, Kerry presses for truce.  Full Article 

Ukraine Crash

Ukraine Crash

Bodies, black boxes handed over from Ukraine crash site.  Full Article 

Bali Trade Deal

Bali Trade Deal

India keeps world guessing in countdown to landmark trade pact deadline.  Full Article 

Bangalore Sex Abuse

Bangalore Sex Abuse

Modi's BJP puts political twist on local sex abuse case   Full Article 

Yahoo to buy Flurry

Yahoo to buy Flurry

Yahoo to buy analytics startup Flurry to bolster mobile ad business.  Full Article 

Wholesale Biz

Wholesale Biz

Wal-Mart adds $102.9 million in Indian wholesale business in June.  Full Article 

Monsoon Effect

Monsoon Effect

Thailand to reclaim top rice exporter spot after poor Indian rains.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage