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India’s fiscal position worsens, infra sector slows

India’s fiscal position worsens, infra sector slows

New Delhi: India’s fiscal deficit reached nearly 71% of its full-year target in the first half of the year, casting doubts over its ability to meet budget goals as federal finances feel the pressure of squeezed revenues and slowing growth.

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“In all likelihood, there will be a slippage on the fiscal deficit front, which could be of significant size", said Siddhartha Sanyal, an economist at Barclays Capital in Mumbai.

India’s fiscal deficit from April to September was 2.92 trillion, government data showed on Monday, 71% of the 4.13 trillion target for the current fiscal year, a serious threat to the government’s deficit projection.

The government has budgeted a fiscal deficit of 4.6% of gross domestic product (GDP) for the fiscal 2012, but many private economists see the deficit for the year overshooting the 5% mark.

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Separately, the Consumer Price Index (CPI), a barometer of price pressures at the retail level, surged an annual 10.06% in September compared with an 8.99% annual rise in the previous month.

Weak markets have hampered government share sales targeted at 40,000 crore, with only about $235 million (Rs 1,150 crore) mopped up so far.

The government has already overshot its borrowing target for fiscal 2012 by more than 53,000 crore. With slowing economic activity taking a toll on the government’s tax revenue collections, investors are bracing for further additional borrowings before the end of this fiscal year.

India’s domestic-demand-driven economy grew only 7.7% in the April-June quarter, its slowest pace in six quarters, and is expected to record its worst annual economic growth since the global financial downturn.

The Indian central bank last week cut the growth projection for 2012 to 7.6% from 8%.

“Clearly there are headwinds to the investment cycle, which the infrastructure output data is showing, while the CPI data reflects the pressure on food prices," Sanyal said.

Net tax receipts were at 2.43 trillion and total expenditure was nearly 6 trillion, but revenue receipts for the April-September period were just 37% of the budgeted level, reflecting the weak federal finances.

A contraction in sectors such as natural gas, cement and coal reflect weakening economic activity. Coal production declined nearly 18% in September, while that of natural gas and fertilizers shrunk more than 6% and 2%, respectively.

A slowing economy but high inflation is posing a policy dilemma for the Indian policymakers.

The Reserve Bank of India (RBI) has raised interest rates 13 times since March 2010 in its battle against persistently high inflation that topped 9% for nearly a year.