Deficit at 90%: Analysts see FM effecting more spending cuts

With government borrowing touching 90 per cent of the budgeted target till October, leading brokerages have said this may force Finance Minister Arun Jaitley to announce another round of spending cuts.
Blaming high fiscal deficit to poor revenue receipts due to lower tax collection and lack of divestment proceeds, Nomura India chief economist Sonal Varma described the fiscal position as a "tighter spot" and said the finance minister will be forced to announce more spending cuts over and above the 10 per cent he has already announced.
The government today said the fiscal deficit touched 89.6 per cent of its full-year budgeted target. Against this during the same period last fiscal, it was 84.4 per cent. The budget has pegged a 4.1 per cent deficit target for this fiscal and Jaitley has many a time reiterated that he will not cross the red line of the fiscal discipline front.

"The finance ministry has implemented a mandatory 10 per cent cut in discretionary spending and it will also save on lower fuel subsidies in H2 due to the fall in oil prices. However, today's data indicate, in our view, that the above measures may not fully offset the shortfall in tax revenues and lack of disinvestment. Therefore, additional spending cuts may be necessary to meet the fiscal deficit target," Varma said in a note.
In a separate note, Citigroup India chief economist Rohini Malkani said trends in government finances remain weak and the present deficit is way above the five year average of 74 per cent in April-October period.

While the government has announced a 10 per cent cut in non-Plan expenditure, which is 0.3 per cent of GDP, we believe that the cuts are likely to be extended in Plan expenditure as well to the tune of 0.5 per cent of GDP for government to meet its fiscal targets," Malkani said.
While in the near term, the government will aim to meet FY15 target of 4.1 per cent through austerity measures and planned expenditure cuts, fiscal consolidation over longer-term could only be achieved with structural fiscal reforms. All eyes are now on the next Budget for clarity/direction on implementation of GST, targeted cash transfers and expenditure rationalisation, she said.