Officials concede new deficit target doubt

Nov 16 2012, 16:47 IST
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SummaryIndia will struggle to meet its already swollen deficit target this year.

and whether it would be enough to meet the 5.3 percent fiscal target.

Last year, the fiscal deficit overshot the target of 4.6 percent by 1.2 percentage points. Another big slippage this year could further erode the nation's fiscal credibility.

It is not business as usual. Everybody is under pressure to meet the (deficit) target, said a finance ministry official. Time is running out.

The government's battle to mend its finances not only undermines the campaign against persistenly high inflation, but  also lowers growth prospects as funding the deficit from domestic savings crowds out private investment.

The government 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.

The response to the 2G auction was in sharp contrast with the 2010 sale of faster, third-generation licences, which fetched the government more than $12 billion and helped contain the deficit that year at 4.7 percent.

We were over-optimistic, a senior economic adviser at the ministry conceded.

Chidambaram pledged last month to nearly halve the fiscal deficit by March 2017. But the plan he presented was short on specifics and was panned by economists.

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