India’s estimated overall fiscal deficits for 2012-2013 were revised up to almost 9 percent by the International Monetary Fund, which cited higher fuel subsidies and revenue shortfalls.
“A determined reduction in costly subsidies would be a strong signal of a credible fiscal turnaround,” the IMF said in its Global Financial Stability Report Update released today. “It would also allow relaxation of financial restrictions, spurring private investment and growth.”
India’s central bank has signaled that efforts to curb the budget shortfall will boost its scope to cut interest rates as economic growth slows. The IMF projected an 8.9 percent gap for 2012 and 8.8 percent for 2013.
Prime Minister Manmohan Singh, who took over the finance ministry last month, has pledged to revive Indian growth after expansion slowed to 5.3 percent in the first quarter from a year earlier, the slowest pace in almost a decade.
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