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  3. Difficult to achieve 4.6% Fiscal deficit target: Subbarao

Difficult to achieve 4.6% Fiscal deficit target: Subbarao

20 May 2011 Evaluate

“India would find it difficult to achieve its fiscal deficit target this year, unless it made adjustments to account for the rise in fuel and fertilizer prices”, said RBI governor D Subbarao. The RBI governor’s comment has raised the market fear that the government would require to increase borrowing to fund the deficit gap. In this year budget, the Indian government had projected a fiscal deficit target of 4.6% of the GDP. This deficit target was broadly considered as ambitious, after its 5.1% deficit target for last year that was met by one-time high revenue through the 2G auctions. The government had said it would borrow a gross Rs 4.17 lakh crore in the current financial year, of which it would raise Rs 2.5 lakh crore in the first half.

“Since crude, fertilizer prices have gone up since the Budget announcements, unless some adjustment is made, either on the expenditure side or the tax side, it is difficult to deliver on a 4.6% target,” Subbarao said. “It is difficult to say whether the government can deliver on a 4.6% target. It depends on what decision they take and a number of issues - the adjustment of fuel prices being the most important one,” he added.

The governor’s comment has raised concerns among bond dealers that the government would increase its borrowing in second half of current financial year. While experts and market analyst feels there should not be any immediate impact on market now. Though oil prices have risen 44% in the past year, India increased the cost of gasoline by as much as 8.5% last week, the biggest rise in three years. Still the government has to share a major chunk of the subsidy burden to thwart the rising trend of inflation. Oil along with other subsidies will play the main spoiler to achieve the deficit target. The inflation picture is both alarming and troubling, as these rates have been high for now over two years and the governments’ concentration is most likely to be in controlling them.

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