The sharp depreciation in the rupee,combined with lower than expected growth projections,has prompted the finance ministry to take a fresh look at its fiscal deficit math.
We have to review the impact of the falling rupee on the oil subsidy as it could be higher than estimated. Also tax revenues could be lower than projected due to the continued slowdown in the economy, said a senior government official,adding that the government could bring in more expenditure cuts if required.
The passage and implementation of the Food Security Bill could also dent the Budget calculations,though its exact impact would be determined on the way it is rolled out. While the government has kept aside Rs 10,000 crore this fiscal for the food security programme,most analysts believe it could hike the food subsidy bill by between Rs 20,000 crore to Rs 40,000 crore. The fiscal deficit target has to be met. The austerity measures announced in 2012-13 are still in force,but the question is whether we can go in for fresh spending curbs. The issue is still open, the official said.
Finance minister P Chidambaram has said that the fiscal deficit would be kept at 4.8 per cent of the GDP in 2013-14 after managing to cap it at 4.9 per cent of the GDP in the last fiscal. But the depreciation in the rupee,which has slipped by 12 per cent since April,has raised fears over the oil subsidy bill for the fiscal,even as concerns are mounting over a drop in tax revenues due to the continued slowdown in the economy. Oil marketing companies have reported an under recovery of Rs 25,579 crore in the first quarter of 2013-14 on diesel,PDS kerosene and cooking gas but the government has about Rs 20,000 crore left for payment of the bill after it used Rs 45,000 crore from the Budget 2013-14 for paying the spill over from the last fiscals oil subsidy.
Meanwhile,tax revenues are projected to grow by about 19 per cent to Rs 8,84,078 crore in the current fiscal but stood at just Rs 1,01,910 crore in the first quarter of 2013-14 or 11.5 per cent of the Budget estimate. Conscious of its strained fiscal position,the finance ministry also chose to seek just Rs 127 crore from Parliament in the first supplementary demand for grants and even refrained from seeking more funds for the oil subsidy bill. But analysts and rating agencies are far from convinced and believe that meeting the target would be difficult. Containing the fiscal deficit at 4.8 per cent in 2013-14 could be an uphill target, said DK Joshi,chief economist at Crisil.
May cut rating if deficit target not met: Fitch
Mumbai: Stating that the space to contain expenditure is very limited in the second half of the fiscal,ratings agency Fitch on Monday said the fiscal numbers look weak and warned of a downgrade if the country is unable to meet fiscal deficit target.
Indias fiscal numbers look weak…fiscal slippage could trigger negative rating action, Fitch Ratings head of Asia-Pacific Sovereigns Andrew Colquhoun said on a conference call on Monday. The agencys lead analyst Art Woo added that fiscal management is a challenging task.
…a slowdown in fiscal expenditure in the second half of the year remains quite challenging, Woo said. PTI