India might miss FY '13 deficit target, poll says

Additional debt of Rs 40,000 cr looms

India will likely miss its revised fiscal deficit target for the financial year ending in March, a Reuters poll showed, putting a question mark over the country's efforts to avert a credit rating downgrade.

Under pressure from global rating agencies and its own central bank, the government unveiled a new plan last week to keep the fiscal deficit at 5.3 per cent of gross domestic production (GDP) this financial year, higher than a previous target of 5.1 per cent but lower than last year's 5.8 percent.

However, higher spending on fuel and fertilizer subsidies along with lower-than-estimated non-tax receipts are likely to keep the deficit at last year's levels, according to a poll of 21 economists.

That could force New Delhi to borrow an extra Rs 40,000 crore via bonds as early as December.

"Measures taken are fairly limited, like a reduction in the subsidy in diesel prices is modest ... and actual data until September shows that the revenue performance is very weak," said Andrew Kenningham, an economist at Capital Economics.

"Growth is not expected to pick up significantly this year so there is no reason to be optimistic that they are going to come near the target." India's fiscal deficit is the widest among major emerging economies due to huge spending on subsidies for items such as food, fuel and fertilizer.

Subdued tax revenues in a slowing economy have aggravated fiscal strains and both Standard and Poor's and Fitch have placed "negative" outlooks on India's current BBB-minus ratings.

The government has announced a slew of reforms since mid-September, raising the price of subsidised fuel and fertilizer, and lifting the bar on foreign investment in the airline, insurance, pensions and retail sectors to shore up the flagging economy.

Although markets cheered those measures, 14 of 17 economists polled think the latest reforms would not avert a downgrade. Despite the recent hikes in prices of fuel and fertilizer, the government's subsidy bill is expected to remain inflated.

According to the poll, spending on fuel and fertilizer subsidies is estimated to be Rs 1,60,000 crore this year, higher than the Rs 1,04,000 crore budgeted in March.

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