India Seeks to Narrow Budget Deficit Target to 6.3%

  • India aims to narrow its budget deficit to 6.3% of gross domestic product this fiscal year, or half a percentage point lower than initially targeted, on the back of improving revenues, according to people familiar with the matter.
  • The target reset is buoyed by expectations of robust tax collections in the coming months and achievement of assets-sale target, said the people, who asked not to be identified as the estimates are being discussed internally. The government will maintain its spending targets, with a focus on capital expenditure, they said.
  • Indirect tax revenue, especially collections from a nationwide consumption tax have surpassed a minimum monthly INR1tr-target in recent months, keeping the government from borrowing more.
  • That signals recovery is gaining traction in the economy, where curbs put in place to stem the pandemic’s second wave have been almost fully lifted. The economy is expected to grow 10% in the year ending March, said the people, whose assessment leans more toward the optimistic scenario.
  • Plans to sell assets, including an initial share sale in insurance behemoth Life Insurance Corp. of India by March, are underway, the people said.
  • The government meeting its target to raise INR1.75tr from sale of state assets this year is key to narrowing the budget gap. It has missed its fiscal deficit targets in the past four years, with the shortfall touching a record 9.3% of GDP in the year ended March 2021.
  • The fiscal deficit could possibly be in the range of 7.2% to 7.5% as revenue assumptions look tough to achieve, according to Care Ratings Ltd. “We have six months left to get the disinvestment story right. Will this happen is a big question?” the rating company said in a note Tuesday.

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