New Delhi: India’s budget deficit, forecast to balloon to a 16-year high this year, can’t be sustained for a long time, said finance minister Pranab Mukherjee.
“We shall have to strike a balance between the requirements of the economy and the capacity of the economy to bear this level of fiscal deficit,” Mukherjee said. Immediate withdrawal of fiscal stimulus may not be the correct approach, the minister said.
Careful approach: Finance minister Pranab Mukherjee says immediate withdrawal of stimulus may not be the right approach.Atul Yadav / PTI
India’s budget deficit is forecast to increase to 6.8% of gross domestic product (GDP) in the 12 months through March 2010.
A widening deficit made Indian bonds the worst performers this year among the top 10 local-currency debt markets in Asia outside Japan, with a 5% loss, according to indexes compiled by HSBC Holdings Plc.
Mukherjee is borrowing a record Rs4.51 trillion this year to fund stimulus packages and revive growth. India’s GDP expanded 7.9% in the three months to 30 September from a year earlier, the quickest pace in six quarters.
India’s local-currency rating outlook was raised to positive from stable by Moody’s Investors Service on 15 December, which cited a strengthening economic recovery.
The change was prompted by increasing evidence that the Indian economy has demonstrated its resilience to the global crisis and is expected to resume a high growth path with its underlying credit metrics relatively intact, Moody’s sovereign analyst Aninda Mitra said in a statement. Moody’s has a Ba2 rating on India’s local debt.