India says will meet deficit target by boosting revenues

NEW DELHI: India expects to meet its fiscal deficit target for the year through March 2005 as new measures to boost revenues kick in but the government will still stick to its market borrowing plan, a top finance ministry official said.

The government expects a 25 percent rise in overall revenue receipts to help curb its fiscal deficit — one of the largest in the world — although it committed around $2.0 billion in new spending on health, education and employment in the July budget.

India’s new Congress-led government has set a target of pruning the fiscal deficit to 4.4 percent of gross domestic product, from a year-earlier 4.8 percent.

“We are around 38 percent of the fiscal deficit target right now. The fiscal deficit target will be met,” Expenditure Secretary Dhirendra Swarup, who oversees the government’s spending and borrowing, told Reuters in an interview on Tuesday.

The government’s first-half-year revenues were 13 percent higher than a year earlier, but some analysts say such a growth rate could be reined in as the impact of an erratic monsoon and high oil prices slows economic activity.

The government hopes measures such as a new tax on securities transactions, inclusion of more services under the tax net and collecting tax arrears will help it meet its deficit target.

“The impact of these new taxes will be felt only in the second half of this year as the budget was announced in July. I am sure the additional revenues will start kicking in now. Spending is also under control,” Swarup said. Analysts said revenue growth, rather than cost control, will help the government meet its fiscal deficit target this year with the expanding industrial and services sectors providing the mainstay for tax collections.

“It will be the strong growth in the industrial and services sector which will fill the coffers of the government and help meet the deficit targets rather than expenditure control,” said Sunil Sinha, economist with independent think-tank National Council for Applied Economic Research.

Debt swap scheme: Swarup said the government’s debt swap scheme with state governments would continue. Under the scheme, the state governments will replace 400 billion rupees of high cost debt in 2004/05 with funds borrowed at current lower interest rates.

The Federal and state government deficits combined represent more than 10 percent of GDP. The government often bails out state governments, some of which even find it difficult to pay employees. Most of the 29 state governments are in a financial mess, analysts say.

State governments are expected to tap the market for nearly 100 billion rupees in the rest of this financial year under the debt swap scheme after borrowing nearly 140 billion rupees so far in 2004. The rest this year would be met from the small savings fund.

Swarup said the government will stick to its borrowing plan but there could be some flexibility in the timing of bond auctions.

“Overall borrowing will remain the same. The borrowings schedule is only indicative. It will all depend on the government’s cash position. There might be adjustments in the calendar.”

Swarup’s comments led federal bonds to extend their gains in morning trade, moving further away from recent two-year lows.

The yield on the popular 7.38 percent 2015 bond eased to 7.1629 percent from 7.2296 percent in the morning and the previous close of 7.2900 percent. The bond closed at 7.2498 percent on Saturday.

The central bank recently cancelled the sale of 50 billion rupees worth of bonds as the government’s cash position was in surplus on the back of increased revenues.

Swarup said the government continued to have a cash surplus of around 130 billion rupees on Nov. 2 with the central bank.

The Indian government has raised 840 billion rupees through market borrowing and private placements with the central bank so far in 2004/05 (April-March), more than 50 percent of its budgeted gross market borrowing of 1,506.81 billion rupees.

High oil prices pushed inflation to a three-and-a-half year high of 8.74 percent in August. The rate has hovered above 7 percent since.

Analysts and research houses expect the Indian economy — Asia’s fourth largest — to grow between 5.5-6.5 percent in the fiscal year ending March 2005, slower than the earlier estimate of 7.0-8.0 percent. —Reuters

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