Bloomberg News

India Budget Gap Reaches 66.3% of Target, Imperiling Fiscal Goal

September 30, 2011

Sept. 30 (Bloomberg) -- India’s budget deficit in the five months through August was 66.3 percent of the fiscal-year goal, as slowing growth adds to the challenge of narrowing the gap.

The deficit was 2.73 trillion rupees ($56 billion) from April through August, the Controller General of Accounts said on its website today. The fiscal year runs to March 31, 2012. The shortfall was 39.7 percent of the annual target in the same period a year earlier.

The Reserve Bank of India, fighting the fastest inflation among major economies, has blamed the deficit for contributing to price pressures. The shortfall will widen to 5.6 percent of gross domestic product this fiscal year, exceeding Finance Minister Pranab Mukherjee’s objective of 4.6 percent, according to Religare Capital Markets Ltd.

“Higher government spending, along with slippages in revenue collections due to slowing economic growth, will make it impossible to meet the fiscal-deficit target,” Jay Shankar, the Mumbai-based chief economist at Religare, said before the release. The administration needs to curtail expenditure and “join hands” with the central bank to damp inflation, he said.

India’s federal government increased its debt-sale target yesterday for the second half of the financial year by about 32 percent. The yield on the 7.8 percent government debt due April 2021 rose 10 basis points, or 0.1 percentage point, yesterday to 8.44 percent, a two-month high. The bond markets are shut today.

India’s inflation has exceeded 9 percent for nine straight months, defying 12 interest-rate increases since mid-March 2010 even as higher borrowing costs crimp consumer spending and contribute to a slowdown in economic expansion.

The central bank raised the repurchase rate to 8.25 percent on Sept. 16, breaking ranks with emerging-market counterparts from Brazil to China, which either cut borrowing costs or kept them unchanged in recent weeks as the global economy weakens.

India’s $1.7 trillion GDP rose 7.7 percent in the three months through June from a year earlier, the slowest pace since 2009.

--Editors: Sunil Jagtiani, Shamim Adam

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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