India's Fiscal Deficit Widens Faster Than Budget

by Mary Swire, Tax-News.com, Hong Kong

30 June 2009

India's fiscal deficit reached INR541bn (USD11bn) in April, compared with INR329bn (USD6.5bn) in the last year. Government spending in April almost doubled from the same period last year while net tax receipts fell by 32% on a year on year basis. However, tax revenue revived in May showing an increase of more than 10%.

The fiscal deficit for the first month is 16.3% of the government's full-year projected budget-deficit of INR3.32 trillion (USD66bn). This follows three fiscal stimulus packages introduced in the December to February period and brings into question whether the government's projected deficit for 2009/10 at 5.5% of GDP is still realistic. The central government deficit could “approach 7% of GDP if tax revenues remain under pressure” this financial year, according to Credit Suisse economists . That compared with a 6.2% shortfall last year.

Credit Suisse economists point to a sooner than expected pick up in industrial output. Industrial production expanded 1.4% year on year in April 2009 against average declines of -0.17% year on year during January to March 2009. Credit Suisse also stated that the recent election result, which was well received by the market, is likely to increase capital flows to India, including foreign direct investment and portfolio inflows.

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