India's fiscal front gloomy, spending cut must to meet deficit: Icra
Terming India's fiscal situation as "gloomy", rating agency Icra on Tuesday said some restriction on productive expenditure will be necessary for sticking to the fiscal deficit target of 4.8 per cent.
"Government's fiscal situation remains gloomy, with high deficits in the eight months ending November and a challenging revenue outlook for the rest of the fiscal," Icra said in a release after the government said it had used up 94 per cent of the market borrowing legroom by November.
"Some restriction of productive expenditure seems necessary to restrict fiscal deficit to the targeted level."
It also said that reduction in productive expenditure would suggest a sub-par quality of fiscal adjustment and weakening growth impulses.
Fiscal deficit touched Rs 5,09,557 crore during the April-November period which is 93.9 per cent of the annual target. (Read more)
The government had fixed the target for the fiscal deficit - the gap between expenditure and revenue - at Rs 5,42,499 crore, or 4.8 per cent of GDP, for this financial year.
The government has repeatedly asserted that the fiscal deficit would be restricted to 4.8 per cent of GDP, down from 4.9 per cent in 2012-13. Finance Minister P Chidambaram had on several occasions said the fiscal deficit target is a red line that would not be breached.
Its optimism is based on expectation that tax mop up will grow at 19.1 per cent and divestment will fetch Rs 55,000 crore and spectrum auction Rs 40,000 crore. However, the latest tax numbers show the collection grew only about 13 per cent while divestment could fetch only Rs 1,300 crore so far.
Spectrum sale will begin now in February.
As per the rating agency, despite the rise in the pace of direct tax collection, corporate and excise collections are likely to fall short of the budgeted estimate.
"Additionally, the staggered payment mechanism for the spectrum auction, which has recently been postponed by 10 days, may result in non-tax revenues coming in below target in this fiscal," it said, adding achieving the budgeted target for disinvestment remains challenging.
On the expenditure front, the rating agency said while food and fuel subsidies would exceed the budget estimate, there would be some savings from cut in non-plan expenditure along with cushion from lower demand for schemes like MGNREGA.
"The slow pace of implementation of ongoing projects and award of new projects in sectors such as roads would restrict the outgo in this fiscal," it said.
The rating agency, however, added some productive expenditure may need to be cut or deferred to ensure that fiscal deficit doesn't exceed the target, which may negatively impact the growth momentum.
