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Indian fiscal deficit widens in 2000-01

India's fiscal deficit in 2000/2001 was equivalent to 5.2 percent of gross domestic product (GDP), slightly above the target of 5.1 percent due to lower-than-expected tax revenues, official data showed Friday.

The fiscal deficit was Rs 1.14 trillion or 102.1 per cent of the targeted Rs 1.12 trillion.

"That's a pleasant surprise because it is close to the targeted figure," Pradeep Srivastava, chief economist at the National Council for Applied Economic Research, said.

Finance Minister Yashwant Sinha, in his budget speech in February, had said the government had been able to keep the deficit within the target.

The deficit rose despite strict control on government spending. Total expenditure was 95.3 percent of the revised estimate of Rs 3,355.23 billion. Expenditure in the previous year was 98.1 per cent of the revised estimate.

Net tax revenue was Rs 92.10 billion lower than the revised estimate of Rs 1,444.03 billion.

A slowing economy which led to poor revenue receipts upset plans to control the deficit. Industrial output growth shrank to 1.3 per cent year-on-year in March from 8.3 percent a year earlier and the outlook for the current year remains grim.

Rating downgraded

Fiscal concerns also prompted Fitch, a global rating agency, to downgrade India's sovereign rating outlook to negative from stable, sending jitters in the country's financial markets.

It cited the fiscal deficit, slow pace of privatisation and deterioration in the country's foreign investment climate as reasons for the downgrade.

Indian shares ended down on Friday but the rupee recovered after dipping to 47.08, very close to its record low of 47.10. It closed at 47.01/02 per dollar on Friday against 47.00/01 on Thursday.

Recent data has shown that the Indian economy is slowing and that government finances are in a tight spot.

The fiscal deficit in April, the first month of the current financial year, was 12.9 per cent of the target set for 2001-02 as against 11.5 per cent a year earlier.

Net tax revenues were also low at Rs 1.56 billion or just 0.1 per cent of the target.

Outlook

Srivastava warned that the chronic fiscal deficit continued to be a problem and the outlook for the current year was no better.

"The economic slowdown will impact revenue receipts and the picture won't be any different this year," he added.

India ranks among the world's top 25 countries in terms of high central budgetary deficit. In 1997, India ranked 10th after Greece, Turkey and Pakistan, among others, the National Institute of Public Finance and Policy said in a report.

The government introduced a bill in parliament in December to wipe out the revenue deficit and cut fiscal deficit to two percent of GDP in five years, but the bill is pending before a panel of lawmakers.

India is now counting on good monsoon rains to lift its sagging economy. The country's weather office has said that the southwest monsoon which provides 80 per cent of India's rainfall and is a key influence on the economy will be normal.

Good monsoon rains are crucial for a good harvest which increases rural incomes, where two thirds of India's one billion population lives, and in turn triggers consumption.

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