S&P warns on deficit targets

A head of the Budget, global rating agency Standard and Poor's has warned India may not be able to achieve the Fiscal Responsibility and Budget Management Act's target of axing fiscal deficit and projected a lower growth of 6 per cent this fiscal year.

However, in its Asia-Pacific sovereign report card, S&P said the Budget for 2005-06, to be unveiled on February 28, was "likely to re-emphasise its resolve for fiscal consolidation, but spending plans will require better revenue generation capability".

Observing that the overall fiscal deficit is better because of debt-swap with states, it said, "The central government is unlikely to meet its own fiscal rules of cutting the Budget deficit by 0.3 per cent to 4.4 per cent of GDP this fiscal year."

About growth, it said India's economic numbers showed a mixed picture, but the underlying strength in the economy remains.

"GDP for fiscal year ending march 31, 2005, is expected to be about 6 per cent," it said, adding that the country had potential to grow by 7 per cent because of the gradual reforms undertaken.

Against strong contributions from industry and services and the weak farm sector in 2004-05, it said, "Some moderation is expected from industry and services, while a reversal in agricultural output is expected going into the next fiscal year."

Noting that the mid-year review of economy in December had highlighted the need to increase taxes and attract foreign direct investment, it said the dynamics of the coalition government would dilute some of these initiatives.

Noting that revenue deficit was higher than the target levels, S&P said, "Small improvements in the central government revenue are likely to be overweighed by expenditure plans and deterioration in states' finances."