Economy | Thu Nov 22, 2012 7:00pm IST

Fiscal deficit could reach 5.5-5.6 pct in FY13: source

Currency of different denominations are seen in this picture illustration taken in Mumbai April 30, 2012.
Reuters/Vivek Prakash/Files
left
1 of 2
right
People walk past a roadside currency exchange vendor in the old quarters of Delhi May 22, 2012.
Reuters/Adnan Abidi/Files
left
2 of 2
right

NEW DELHI (Reuters) - India's fiscal deficit could miss the revised official target and swell to as much as 5.6 percent of GDP, a top government official told Reuters on Thursday, making it tougher for the government to avoid a credit rating downgrade.

The comments were the gloomiest scenario for public finances yet given by the government and follow a failed auction of mobile phone spectrum last week that dashed its income forecasts.

Global rating agencies have threatened to downgrade India's sovereign credit rating to junk if it fails to rein in its deficit, which is ballooning because of higher spending on food, fuel and fertiliser subsidies and poor tax receipts.

Just last month, Finance Minister P. Chidambaram raised the fiscal deficit target to 5.3 percent of GDP for the current financial year to end-March 2013 from a previous target of 5.1 percent.

"Looking at the current trends in revenue and expenditure, 5.3 percent looks tough," said the official, who has direct knowledge of the government finances.

"There could be a shortfall of about 500 billion rupees in revenue receipts," the official said, explaining that would add 0.5 percentage points to the original 5.1 percent target.

A second official agreed with that assessment. Both officials declined to be identified citing the sensitive nature of the information.

In setting the revised 5.3 percent deficit target, the government was banking heavily on generating billions of dollars from the auction of second-generation (2G) mobile phone licences. But the auction last week yielded just under 25 percent of the targeted 400 billion rupees.

The government plans to have an auction of still-unsold telecom spectrum before March. But the first official said even with that auction, the government could at best garner only 200 billion rupees for the full fiscal year.

That could force the government to borrow an additional 400 billion rupees from the market, the official said, in the most negative borrowing scenario the government has yet given.

Private economists polled by Reuters earlier this month had estimated the government would need to borrow this amount, but only if the deficit hit 5.8 percent. Heavy government borrowing is seen as a drag on economic growth, because it drives up borrowing costs for private investors.

After the auction last week, Chidamabaram said he was still confident India could hit the 5.3 percent deficit target.

Bond yields rose on the Reuters report. The benchmark 10-year bond yield rose to as high as 8.23 percent, up 3 basis points from levels before the news. The yield was last trading at 8.22 percent compared to its 8.21 percent close on Wednesday.

New Delhi is on track to borrow 5.7 trillion rupees, or 5.6 percent of GDP, by February. Every 0.1 percentage point increase in the deficit is estimated to result in an additional market borrowing of at least 100 billion rupees. (Reporting by Rajesh Kumar Singh; Editing by Prateek Chatterjee)

Top India News

Reuters Showcase

Auto Sector

Auto Sector

Ford aims to triple exports from India with $1 billion plant  Full Article 

Micromax Stake

Micromax Stake

SoftBank-led group in talks to buy stake in Micromax - sources  Full Article 

Airwaves Auction

Airwaves Auction

Top three mobile operators spend $13.6 bln in airwaves auction  Full Article 

Insurance Sector

Insurance Sector

Australia's IAG to up stake in joint venture with SBI  Full Article 

Accenture Results

Accenture Results

Accenture raises revenue growth forecast for second time  Full Article 

GAIL's Plans

GAIL's Plans

GAIL seeking 7 LNG cargoes from Oct. 2015-Dec. 2016 - tender document.  Full Article 

Eyeing Pininfarina

Eyeing Pininfarina

Pininfarina confirms Mahindra interest, says no deal yet  Full Article 

SH Kelkar IPO

SH Kelkar IPO

SH Kelkar files prospectus for IPO, seen at around $100 mln  Full Article 

Australia Beat India

Australia Beat India

Smith shines as Australia down India to reach final  Full Article 

Reuters India Mobile

Reuters India Mobile

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

X