It was going well for the government to keep the fiscal math in order. Inflation levels were easing to less than 5 per cent and tax collections were expected to rise.
But the near 12 per cent depreciation in rupee against the dollar since the end of April has spoiled the party.
Diesel prices,according to research and rating agency Crisil,could rise by about Rs 1.5 per litre and under recoveries of oil marketing companies may touch Rs 1.05 lakh crore. This,in turn,raises concerns of a fresh surge in inflation and meeting of the fiscal deficit targets.
Despite a softening in global crude oil prices,in rupee terms,the crude oil prices increased to Rs 6,280.92 per barrel on July 9 as compared to Rs 5,907.84 per barrel at the start of the fiscal (April 2,2013),an over 6 per cent rise.
Every time the rupee slips by 1 against the US dollar,the annual oil import bill rises by about Rs 8,000 crore.
Naturally,this would have a huge impact on oil subsidy bill,which the finance ministry hoped to keep at Rs 20,000 crore in 2013-14.
Government officials admit they may not be able do much to contain this volatility and instead are gearing up to bear the brunt of the currency.
This is hardly good news for the fiscal deficit,especially when the government payouts to fund the Food Security Bill could rise by at least Rs 20,000 crore.
Toplines,and consequently tax payouts by India Inc,too,may remain sluggish,not only due to the overall economic slowdown but also as the depreciating rupee impacts sales in sectors like automobiles,airlines and consumer durables.
In further trouble for the fiscal deficit,finance minister P Chidambaram has already said that he is unsure of meeting the revenue target from spectrum auction and the governments disinvestment programme is not going anywhere.
As a result,meeting the fiscal deficit target of 4.8 per cent of the GDP may have seemed easy earlier in the year,but not so much now.
Surabhi is a special correspondent based in New Delhi
surabhi.prasad@expressindia.com
