INDIA'S finance minister is finding it harder and harder to meet the government's budget promises and may sweep as much as US$15 billion (RM47 billion) in subsidy costs into next year's accounts to ensure he hits fiscal targets ahead of national elections, ministry officials say.
P. Chidambaram insists that the fiscal deficit target of 4.8 per cent of gross domestic product (GDP) for the year to March 31, 2014, is a red line that will not be breached.
The worst economic downturn since 1991 and a fall in the rupee to a record low have undermined budget assumptions for some months.
But finance ministry officials said the window to raise domestic fuel prices sharply, which would cut subsidies, is closing with state and national elections drawing closer, so shifting some costs into the 2014/15 budget is inevitable.
"It's a given," said one official.
The worst-case scenario as of now is that US$15 billion in costs will have to be rolled over into next year's budget, the ministry officials said. This assumes that there will be no substantial increase in domestic fuel prices to offset the ballooning subsidies.
By rolling over some costs, Chidambaram can tell voters in the run-up to the elections, which must be held by May, that the government met its deficit target. But equally, he will be shackling the next government with costs that could blunt its ability to stimulate an economic recovery.
"Whatever we need to do, we will do. But the fiscal deficit target will be met," said a finance ministry official. "No one should be in doubt about that."
Meeting the target is important also to stave off the ire of ratings agencies as India's credit status sits just one notch above junk. A loss of its investment grade rating would probably increase the government's borrowing costs.
Last year, Chidambaram narrowed the budget deficit by one percentage point to 4.9 per cent of GDP by pushing nearly US$15 billion in subsidy costs into this year's budget and cutting more than US$16 billion in planned spending, two officials said.
This year, he could roll over a similar amount in subsidies, the officials said. This will be in addition to spending cuts of US$3.2 billion or more that officials are already predicting for the year. Reuters