India Intelligence Report
 

   Out of Control Revenue Deficit

 

In worrying signs for the economy, the latest revenue expenditure statement released by the Government, revenue deficit ballooned in April and was 21.5% of the estimated deficit in the budget compared to 18.8% last year. Both revenue and expenditure increased by 2.4% and 7.5% compared to .5% and 5.9% last year respectively--Tax revenue dropped by 1.5% and non-tax revenue by a marginal amount.

The Government plans to hold fiscal deficit at 3.8% of GDP compared to 4.1% of last year and revenue deficit at 2.1% compared to 2.6% last year. Reports say that unplanned populist programs are demanding expenditure while budgeted programs are not moving forward.

To offset these shortfalls, the Government has to either increase taxes (which would be disastrous), disinvest, attract more foreign direct investment or foreign institutional investment, or curb expenditure. The Government plans to sell its minor stake in Neyveli Lignite Corporation that would net it USD 292 million but would not cover the yawning USD 7 billion plus deficit. It had also wanted to sell its 5% stake in National Aluminum Corporation (NALCO) but has since dropped the idea because of pressure from the communists not to sell the stake.

Analysts say that India may not be able to meet these fiscal numbers which could lead to lower of its rating which could make it more expensive for companies to operate.

 

 

 

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