India’s government may curb spending
growth in the budget tomorrow to pare the widest fiscal deficit
in major emerging nations, seeking to boost the central bank’s
scope to reduce interest rates as the economy falters.
Finance Minister Palaniappan Chidambaram will keep deficit
goals set in October of 4.8 percent of gross domestic product
for the year through March 2014 and 5.3 percent in 2012-2013,
Goldman Sachs Group Inc. and Credit Suisse Group AG said.
The government has stepped up efforts to avert a credit-
rating downgrade and damp inflation of almost 7 percent under
policy changes since September. To avoid political repercussions
from restrained expenditure, Chidambaram could allocate initial
funds for a plan to give poor people cheap food, according to
State Bank of India, the nation’s largest lender by assets.
“Moderating the subsidy bill will help the Reserve Bank of
India to lower rates, boosting private-sector borrowing,” said
Taimur Baig, the director of Asia economics at Deutsche Bank AG,
who previously worked at the International Monetary Fund. “But
we need to see if the government keeps to its fiscal road map as
the year progresses.”
Benchmark 10-year bond yields have slid 23 basis points in
2013 to 7.82 percent as Chidambaram strives to preserve India’s
investment-grade rating. The rupee has strengthened 1.7 percent
versus the dollar in the period to 54.095, paring its loss in
the past 12 months to 9 percent. The BSE India Sensitive Index (SENSEX)
of stocks has slipped 2.1 percent this year.
Railway Fares
Chidambaram’s target is a 3 percent shortfall by 2017. He
presents the last full budget ahead of a general election due by
2014 at 11 a.m. in parliament in New Delhi tomorrow.
The administration said yesterday it intends to link rail
passenger fares and freight rates to fuel prices for the first
time, in a bid to reduce more than $4.5 billion of losses at
Indian Railways, Asia’s oldest network.
Morgan Stanley estimates total government expenditure will
climb 9.5 percent to 16.1 trillion rupees ($298 billion) in
2013-2014, less than the 12.9 percent increase in the current
fiscal year. It predicts subsidies will fall 8.6 percent to 2.6
trillion rupees.
Sales of shares in state-owned companies, auctions of
telecom spectrum and a climb in tax revenues will also help
contain the deficit, according to Morgan Stanley’s projections.
Share Sales
India intends to raise 350 billion rupees next fiscal year
by disposing of stakes in companies including Coal India Ltd.,
Indian Oil Corp., Engineers India Ltd., Power Grid Corp. of
India Ltd. and Bharat Heavy Electricals Ltd., two Finance
Ministry officials said this month, asking not to be identified
as the plan isn’t public.
The nation plans gross market borrowing of about 6 trillion
rupees in 2013-2014, a record high, according to three Finance
Ministry officials with knowledge of initial estimates. They
also requested anonymity as the details aren’t public.
Oil subsidies will drop 41 percent after diesel prices were
partially freed from state control last month, Morgan Stanley’s
figures show. The savings may help fund supplies of rice, wheat
and millet in the pending National Food Security Bill.
The bill aims to provide grains to more than 60 percent of
India’s 1.2 billion people. About two-thirds of the population
live on less than $2 per day, based on World Bank data.
India’s GDP will rise 5 percent in 2012-2013, the weakest
pace in a decade, the statistics agency forecasts. Price
pressures, a drop in exports and cooling investment hurt growth.
Credit Rating
“The government should, and I guess will, resist any
temptation to be overly populist as the chips are stacked
against them,” said Vishnu Varathan, an economist at Mizuho
Corporate Bank Ltd. in Singapore. Excessive spending may
threaten India’s investment-grade credit rating, he said.
India has the widest fiscal gap in the BRIC group of large
emerging countries, which also includes Brazil, Russia and
China. Standard Poor’s and Fitch Ratings warned last year they
may strip the nation of its investment-grade rating.
The Reserve Bank has signaled the fiscal gap and a record
shortfall in the current account limit its room to lower
borrowing costs. It reduced the repurchase rate to 7.75 percent
from 8 percent on Jan. 29, the first cut since April 2012.
The central bank in a Jan. 28 report indicated a push to
pare the deficit that increasingly relies on sales of shares in
state-owned companies and one-off auctions of telecom permits
may be unsustainable.
Prime Minister Manmohan Singh has changed policies since
September to revive expansion, including steps to open retail
and aviation to more foreign investment, ease caps on capital
inflows and accelerate infrastructure projects.
The reforms will help to boost Indian expansion to 6
percent in the year through March 2014, the IMF forecasts. That
would remain below the past decade’s average of about 8 percent.
“The current macro backdrop warrants a reduction in the
fiscal deficit,” said Chetan Ahya, an economist at Morgan
Stanley in Hong Kong. “The government also needs to ensure
momentum in policy measures to accelerate investment.”
To contact the reporter on this story:
Unni Krishnan in New Delhi at
ukrishnan2@bloomberg.net.
To contact the editor responsible for this story:
Stephanie Phang at sphang@bloomberg.net
India’s Finance Minister Palaniappan Chidambaram
Tomohiro Ohsumi/Bloomberg
Benchmark 10-year bond yields have slid 23 basis points in 2013 to 7.82 percent as Palaniappan Chidambaram, India’s finance minister, seen here, strives to preserve India’s investment-grade rating.
Benchmark 10-year bond yields have slid 23 basis points in 2013 to 7.82 percent as Palaniappan Chidambaram, India’s finance minister, seen here, strives to preserve India’s investment-grade rating. Photographer: Tomohiro Ohsumi/Bloomberg
India Seen Curbing Widest BRIC Budget Gap to Boost Rate-Cut Room
Brent Lewin/Bloomberg
A woman walks through Connaught Place in New Delhi. India’s GDP will rise 5 percent in 2012-2013, the weakest pace in a decade, the statistics agency forecasts.
A woman walks through Connaught Place in New Delhi. India’s GDP will rise 5 percent in 2012-2013, the weakest pace in a decade, the statistics agency forecasts. Photographer: Brent Lewin/Bloomberg
India Seen Curbing Widest BRIC Budget Gap to Boost Rate-Cut Room
Brent Lewin/Bloomberg
A man stands by a tree in a park in Rajiv Chowk in Delhi in New Delhi. The nation plans gross market borrowing of about 6 trillion rupees in 2013-2014, a record high, according to three Finance Ministry officials with knowledge of initial estimates.
A man stands by a tree in a park in Rajiv Chowk in Delhi in New Delhi. The nation plans gross market borrowing of about 6 trillion rupees in 2013-2014, a record high, according to three Finance Ministry officials with knowledge of initial estimates. Photographer: Brent Lewin/Bloomberg
India Seen Curbing Widest BRIC Budget Gap to Boost Rate-Cut Room
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