FM P. Chidambaram seen walking budget tightrope as economy slows

Feb 14 2014, 11:33 IST
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P.Chidambaram is likely to make a last-ditch attempt to win back voters by announcin funds for health, jobs, roads, food subsidies. PTI P.Chidambaram is likely to make a last-ditch attempt to win back voters by announcin funds for health, jobs, roads, food subsidies. PTI
SummaryChidambaram is likely to make last-ditch attempt to win back voters with funds for health, jobs, food.

2014/15 fiscal year.

He is expected to report a fiscal deficit of nearly 4.8 percent of GDP for the current fiscal year, helped by sharp spending cuts, higher receipts from the sale of telecoms spectrum and dividends from state firms.

"We will surprise everyone on the fiscal deficit numbers," a senior finance ministry official told Reuters.

"The government is expected to cut budgeted expenditure by 550-650 billion rupees in sectors like roads, metro rail, defence and power sectors to meet the deficit target," said another government source.

It also may defer oil, fertiliser and other subsidies worth nearly 1 trillion rupees ($16.10 billion) to the next fiscal year, he said, adding the final figures could be higher, and would be known only at the end of fiscal year on March 31.

Both sources declined to be identified because they were not authorised to speak about budget numbers.

However, the oil, fertiliser and food subsidies are likely to be budgeted at about 2 percent of GDP for next fiscal year, compared with 2.21 trillion rupees ($35.59 billion) budgeted subsidies for this fiscal, the second source said.

The next government may revise these numbers when it presents the full-year budget in June or July.

Officials say the finance ministry has rejected the power ministry's proposal to grant an annual 250 billion subsidy for gas-based power plants to cushion customers as natural gas prices are set to almost double from April 1.

However, the railways, defence, health and other ministries have been assured of more funds in the budget.


Analysts and the central bank are worried that by deferring a large amount of subsidies to the next fiscal year, Chidambaram may harm growth prospects.

"The government should avoid deferring release of funds for expenses that have already been incurred, to prevent tightening of systemic liquidity and further harm to sluggish growth," said Aditi Nayar, an economist at ICRA, the Indian arm of credit rating agency Moody's.

The central bank has asked the government to target food and fuel subsidies for fiscal consolidation, and take steps to deal with food inflation.

"The quality of fiscal consolidation worries us," Samiran Chakraborty, senior economist, Standard Chartered Bank, said in a research note on Wednesday.

It expects gross borrowing for next fiscal year at 5.8 to 6 trillion rupees, assuming 12 percent nominal GDP growth.

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