India will defer spending to rein in fiscal deficit

India will defer spending to rein in fiscal deficit
Mexico City:

India is reviewing budgeted expenditure at each ministry and plans to defer some spending to the next financial year beginning April to keep the fiscal deficit at 5.3 per cent of GDP, a top finance ministry official told Reuters on Monday.

India's economic growth is expected to slow to about 5.5 per cent this fiscal year, the slowest pace in a decade, while rating agencies S&P and Fitch say higher spending and rising subsidies could push the fiscal deficit to 6 per cent of GDP.

"Those expenditures that can be moved to the next year would be moved, instead of being done this year," Arvind Mayaram, economic affairs secretary at the ministry of finance, said in an interview.

He said the government was determined to keep the deficit to 5.3 per cent of GDP this fiscal year, and would take all necessary steps for this purpose. However, he ruled out drastic, across-the-board spending cuts.

Analysts have expressed doubt about whether the government would be able to keep the deficit even to that level.

"Prospects for a material improvement in the fiscal position in the near term are remote, leaving intact the risk of a sovereign downgrade," Anjalika Bardalai, an analyst with political risk consultants Eurasia Group, said in a recent research note.

In March, the government budgeted Rs 14.9 lakh crore spending in the 2012-13 fiscal year. It estimated revenue of Rs 9.4 lakh crore and targeted a fiscal deficit of 5.1 per cent of GDP.

But delays to planned economic policies and the global slowdown have impacted growth and tax collection, forcing the finance ministry to revise the deficit target upwards and look at ways to save money and increase revenues.

"We are reviewing expenditure at this point of time. By early December we will be able to get a picture of what type of savings we will get from that," Mayaram said.

He said finance ministry expected a moderation in the burden of oil subsidies because of a recent hike in diesel prices and the appreciation of the Indian currency.

"We believe the rupee might strengthen a little further and go down to 52-52.5 (to the dollar), in which case there would be a substantial shaving off of the subsidy bill on that account," Mayaram said.

The rupee was trading at around 54.6 to the US dollar on Tuesday.

The finance ministry official said the government was working on a number of new economic reforms. He mentioned overseas borrowings and the corporate bond market as areas being looked at.

"Please expect announcements every 15 days," he said.

Copyright: Thomson Reuters 2012