India’s Budget Deficit Widens to 7-Year High, Ratings at Risk
India’s budget deficit widened to a seven-year high as the government increased spending, putting the nation’s credit ratings at risk.
The shortfall climbed to 3.3 trillion rupees (69.95 billion) or 6.2 percent of gross domestic product in the fiscal year to March 2009, the government said in New Delhi today. That was more than the 2.5 percent initially estimated last year and February’s revised 6 percent figure.
India’s Baa2 credit rating may come under pressure if Prime Minister Manmohan Singh can’t rein in a widening budget deficit, Moody’s Investors Service said yesterday. Singh’s government, which won a second five-year term this month, is borrowing more to fund three stimulus packages to revive growth in Asia’s third-largest economy.
“The government’s fiscal situation will remain precarious this year as well due to higher expenditure,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor’s. “Balancing the fiscal stress and sustaining the growth momentum will remain a key challenge for the new government.”
Moody’s yesterday said the inability of the government “to meaningfully adjust fiscal policies and push ahead with reforms could pressurize the foreign currency credit rating.”
Central bank Governor Duvvuri Subbarao early this month expressed concern over the widening deficit and on May 22 said a rising budget shortfall to finance more fiscal stimulus may prevent interest rates from declining.
‘Higher Priority’
The shortfall is the amount the government needs to borrow to bridge the difference between spending and non-debt receipts no faxing payday loan. A wider budget deficit may lead to higher government borrowing.
India’s deficit widened as tax collections slowed amid weaker economic growth. The government received 4.47 trillion rupees of tax revenue, less than the 4.65 trillion rupee target.
India plans to borrow a record 3.62 trillion rupees ($76 billion) in the current fiscal year that started April 1 and estimates the budget shortfall at 5.5 percent of GDP.
Sustaining economic growth is a “higher priority at this moment” over sovereign ratings, India’s Finance Secretary Ashok Chawla said May 27. India has asked the rating agencies to explain the rationale behind their recent warnings, he said.
India’s Finance Minister Pranab Mukherjee on May 27 said the government will continue to step up spending this year to support growth, risking a wider budget deficit.
Singh’s government has unveiled three stimulus packages since December, including lowering retail fuel prices, cutting taxes on consumer products and injecting capital into state-run banks, to shield the economy from the global crisis.
The $1.2 trillion economy may grow by between 6 percent in the current fiscal year, the slowest pace of expansion since 2003, according to the central bank.