Kaushik Basu says to keep FY12 fiscal gap under 5% of GDP
In spite of a slowing economy and worsening global outlook, India will try to keep its fiscal deficit under 5% of the gross domestic product (GDP).
New Delhi - India will try to keep its fiscal deficit under 5 percent of the gross domestic product, even as a slowing economy and worsening global outlook make it "difficult" to meet fiscal targets, a top government adviser said in an interview broadcast on Monday.
The economy is expected to grow 8.1 percent in the current fiscal year to end-March 2012, provided the euro zone crisis does not develop into a recession, Kaushik Basu, the finance minister's chief economic adviser, told television channel CNN-IBN. In February, the government had budgeted a fiscal deficit of 4.6 percent of GDP for the fiscal year 2011/12, narrower than 4.7 percent in the previous financial year. "The fiscal targets will be difficult but the fiscal targets are still very achievable," Basu said. "We will be under 5 percent. We are determined to keep it there," he said, referring to the fiscal deficit.
Any slippage on the fiscal gap target is expected to force the government to resort to higher market borrowing, crowding out private borrowers. New Delhi has budgeted a gross borrowing of 4.17 trillion rupees ($87.2 billion) for the current fiscal year and has already borrowed 2.5 trillion between April and September.It will decide on its borrowing schedule for the second half of the financial year 2011/12 on Oct. 3.
Most market participants expect the government to raise its market borrowing by 300 billion to 700 billion rupees, depending on its fiscal performance.New Delhi's fiscal calculations were based on a low subsidy bill, high economic growth and higher proceeds from stake sales in state-run firms.
However, a slowdown in the domestic economy, high global crude prices and mounting global economic uncertainty amid a prolonged euro zone debt crisis that has roiled the world markets appear to have upset those calculations. The federal government's fiscal deficit between April-July was 55.4 percent of the budget estimates, sharply higher than 23.8 percent during the same period last year. Its net tax receipts in the first four months of the current fiscal year amounted just 17.2 percent of the full year target compared with 21.1 percent in the year ago period.
Choppy equity markets have slowed down the government's $8 billion divestment programme. This year it has managed to sell shares only in Power Finance Corp, which fetched about $250 million."Disinvestment is a source of some worry," Basu said.
Last week, state-run explorer Oil and Natural Gas Corp's share sale, which was expected to raise as much as $2.5 billion, was deferred due to poor market conditions.India's 30-share benchmark index is down about 18 percent since the start of 2011 and is among the worst-performing equity markets in the world.
The region's share of world arms imports appears to have been about three per cent, trending upward and exceeding four per cent in 2004-05, the report said.
HSBC's services purchasing managers' index, compiled by Markit, rose almost two points to 54.7 in May from 52.8 in the previous month.