By Nick Mann | 17 December 2012
Uncertainty over plans to sell off government stakes in state-run companies and higher-than-forecast subsidy payments are making it difficult for India to reach its original deficit target for 2012/13, the country’s finance ministry said today.
In its budget for the current financial year, the Indian government had aimed to reduce its deficit from the 5.8% of gross domestic product recorded last year to 5.1%.
But in its Mid-year economic report, the finance ministry revealed that its deficit for the first six months of 2012/13 was equivalent to 65.6% of the total originally budgeted for the whole year. This ‘raises some concern’ when compared with the five year average of 56.6%, it said.
Tax revenues and spending do not show any significant slippage but the report added that ‘uncertainty on account of disinvestment receipts and likely higher subsidy requirement does make it a challenging task to adhere to the overall fiscal deficit target during 2012-13’.
The report was more confident about the government’s chances of meeting the amended deficit target of 5.3% it set in October. This came in response to the state-appointed Kelkar committee’s warning that, without increased revenues, the sell-off of state assets and actions to curb subsidies, the deficit could reach 6.1% this year.
Government has revised diesel prices and capped subsidies on fuel to consumers, the ministry explained. It is also taking ‘various steps’ to boost revenues, as well imposing spending cuts by restricting foreign travel and reducing non-plan expenditure by 10%
These measures on the expenditure side will ‘partially offset’ the higher-than-budgeted-for spending on subsidies and the slippage in non-debt revenues from the recovery of loans, it said.
‘With the likely revival in the economy and the measures already taken and those on the anvil, it is likely that the fiscal deficit for the year would be 5.3% of GDP,’ the ministry concluded.
Under the government’s fiscal consolidation plans, this is then expected to be reduced to 4.8% next year and then by 0.6 percentage points every year after then until 2016/17.
