Bloomberg News

India Budget Gap Reaches 70.8% of Target, Imperiling Fiscal Goal

October 31, 2011

Oct. 31 (Bloomberg) -- India’s budget deficit in the six months through September was 70.8 percent of the annual goal, as slowing growth adds to the challenge of narrowing the gap.

The deficit was 2.92 trillion rupees ($60 billion) from April through September, the Controller General of Accounts said on its website today. The fiscal year runs to March 31. The shortfall was 34.9 percent of the annual target in the same period a year earlier.

The Reserve Bank of India said last week its plan to end a record cycle of interest-rate increases depends on the government’s ability to rein in its budget deficit. The shortfall will widen to 5.1 percent of gross domestic product this fiscal year, exceeding Finance Minister Pranab Mukherjee’s objective of 4.6 percent, according to Yes Bank Ltd.

“Government spending adds to price pressures and robs the efficacy of higher interest rates,” said Shubhada Rao, Mumbai- based chief economist at Yes Bank. “The fiscal deficit will be higher this year as a slower growth will hurt tax revenue.”

The yield on the 7.8 percent bond due April 2021 rose 3 basis point, or 0.03 percentage point, to 8.88 percent at the close in Mumbai today. The rupee gained 0.1 percent to 48.6950 per dollar while the BSE India Sensitive Index fell 0.6 percent.

Revenue collections were 37.2 percent of the full year target in the six months through September compared with 58.4 percent of the annual target in the same period last year, today’s report showed.

India’s federal government last month increased its debt- sale target for the second half of the financial year by about 32 percent.

India’s inflation has exceeded 9 percent for 10 straight months. The central bank raised its repurchase rate by a quarter of a percentage point to 8.5 percent on Oct. 25, the 13th increase in the benchmark since mid-March 2010.

The Reserve Bank of India last week cut the nation’s growth forecast to 7.6 percent in the year ending March 31 from an earlier estimate of 8 percent.

--Editors: Cherian Thomas, Arijit Ghosh

To contact the reporter on this story: Unni Krishnan in New Delhi at

To contact the editor responsible on this story: Shamim Adam in Singapore at

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