Fiscal deficit touches 83 per cent of full-year target in first half

Falling crude prices not sufficient to contain deficit

The fiscal deficit reached nearly 83 per cent of its full-year target in the first half of this fiscal, giving the government a tough job meeting its budget target even with help from a fall in global crude prices that will reduce the oil subsidy bill.

A 25 per cent fall in oil prices since June has helped Prime Minister Narendra Modi’s government contain oil and fertilizer subsidies, but revenue growth has been slow. In his maiden budget, Finance Minister Arun Jaitley had targeted a reduction in the fiscal deficit to 4.1 per cent of the gross domestic product in the current fiscal year, down from 4.5 per cent in the previous year.

On Thursday, Prime Minister Modi ordered bureaucrats to stop flying first-class, as part of austerity drive aimed at reducing discretionary spending by 10 per cent in the fiscal year to March, 2015.

The fiscal deficit was Rs.4.39 lakh crore ($71.5 billion) during April-September, or 82.6 per cent of the full-year target, government data showed on Friday.

The deficit was 76 per cent during the comparable period in the previous fiscal year.

Net tax receipts totalled Rs.3.23 lakh crore ($52.60 billion) in six months of the fiscal year.

Officials are worried that slow growth in tax collections could force the government to cut capital spending as it has done in the past two years, in order to maintain its credit ratings. The government aims to raise about $9.5 billion from the sale of shares in state-run companies and minority stakes in private companies this fiscal year, but it has still to start the process.

“With tax revenue growth underperforming the budgeted target in the first half of 2014-15, revenue buoyancy will crucially hinge upon the success of the telecom auction and disinvestment offerings in the remainder of this fiscal,’’ said Aditi Nair, an economist at ICRA, the Indian arm of rating agency Moody’s.

While welcoming the government’s efforts to boost growth, Moody’s said on Thursday it wanted to see more momentum in reforms for at least the next two years to have a positive impact on India’s credit rating. Moody’s rates India at ‘Baa3’, or the lowest investment grade, with a ‘stable’ outlook.

It was the only one among the three major global credit agencies not to downgrade India’s outlook to ‘negative’ over the past three years.

“Even though the fiscal deficit reached nearly 83 per cent of the budgeted amount in first half of 2014-15, a sharp slippage relative to the target of 4.1 per cent of GDP is unlikely in 2014-15,” Mr. Nair said.