FM's record doesn't inspire hope on deficit target

Mumbai: Economists at global rating agencies and fund houses have described the 5.1-per cent fiscal deficit target as an uphill task and devoid of clear roadmap, adding that track-record of the Finance Minister last year, coupled with still uncertain global environment, does not make the number seem tenable.

They also said the deficit target will most likely overshoot by 20-40 bps to 5.3-5.5 per cent, as the projected revenue increase and subsidy cuts may not materialise.

"We do expect some fiscal slippages relative to the budget target, with the final figure possibly slipping to around 5.3-.5.5 per cent of GDP," said HSBC chief economist for India Leif Eskesen, though he described the Budget as

"more realistic, and low on ambition".

Eskesen said fiscal slippages are likely to come from non-tax revenues and subsidies front, and increasing indirect taxes, divestment target and spectrum receipts and cutting subsidies will not be sufficient.

He admitted that Budget reflects the tight-rope FM has to walk due to economic and political realities. The fiscal policy has to help RBI contain inflation and bring public finances back onto a sustainable path to allow the government

to regain fiscal credibility after this year's significant slippage, he said.

The problem arises, according to him, from the fact that though the Budget moved the deficit in the right direction, the implied fiscal consolidation is relatively moderate, apart from being not serious on structural reforms.

He also said subsidy bill may also be difficult to achieve if oil prices remain high and inflation proves sticky.

Leading global rating agency Standard & Poor's also said the uncertainty regarding policy implementation will keep the deficit high next fiscal despite reforms.

"While the FM announced various fiscal reforms, the timing of the implementation of key reform measures such as GST, DTC, and targeted direct subsidy remains uncertain. Also, deficit is likely to remain high, as uncertainty surrounds the path to subsidy consolidation and to lowering the fiscal vulnerability to volatile commodity prices," it said.