Citi sees India FY12 fiscal deficit 5.1-5.5%

Citi sees India FY12 fiscal deficit 5.1-5.5%

Mumbai: India’s fiscal deficit in FY12 could rise to 5.1-5.5% of gross domestic product (GDP), above the government’s target of 4.6%, due to subsidy burden and lower tax collection, Citigroup Global Markets said in a note on Thursday.

“The expenditure numbers appear optimistic due to a budgeted 12.5% contraction in subsidies," analyst Rohini Malkani wrote in the note.

The government has put off a decision to raise diesel and cooking fuel prices, a political hot potato as it juggles double-digit inflation, a soaring deficit and a voter base which has already voiced outrage over gasoline price increases.

A panel of ministers may meet on 9 June to discuss raising the prices, an oil ministry source said on Thursday.

Indian diesel demand will surge this summer as subsidies make it cheaper than fuel oil for burning in power plants and factories, potentially tightening distillate supplies in Asia if New Delhi does not act soon to raise local tariff.

Moderation in growth could also put some pressure on overall tax collection, which is based on real gross domestic product (GDP) growth estimate of 9%, the note said.

Terming the government’s estimate of 6% inflation for year ending March 2012 optimistic, the note pegged the figure at 7.5%.

“The likelihood of higher inflation coupled with a clear statement of bringing inflation down at the cost of growth is likely to result in an elongation of the rate tightening cycle," Malkani said.

Citigroup has also raised its total rate hike estimates by 50 basis points, taking the repo rate to 8%, by end-2011.