India Budget Gap Said to Be Lower Than Estimated at 4.9% of GDP

India’s budget deficit last fiscal year was narrower than estimated, aiding the nation’s efforts to preserve its investment-grade credit rating, according to two Finance Ministry officials with direct knowledge of the data.

The gap was 4.9 percent of gross domestic product in the 12 months ended March, less than the 5.2 percent estimated by Finance Minister Palanaippan Chidambaram in the Feb. 28 budget speech, said the officials, asking not to be identified before the official release of the figures later today.

Higher than anticipated non-tax revenues and expenditure curbs led to the narrower shortfall, both the officials said. The government pared the deficit to help damp inflation and increase scope for interest-rate cuts to revive growth. A report today showed economic expansion slowed to 5 percent in 2012-2013, the weakest pace in a decade.

The lower deficit “is a positive development and I hope the rating agencies and markets will take a note of it,” said Arun Singh, an economist at Dun & Bradstreet Information Services India Pvt. in Mumbai. “As much as this development is welcome, the critical thing is the government still needs to improve the quality of its expenditure and cut down on wasteful subsidies.”

The yield on the 8.15 percent government note maturing in June 2022 was at 7.45 percent at 12:45 p.m. in Mumbai from 7.47 percent earlier. The S&P BSE Sensex index slid 1.3 percent, while the rupee weakened 0.4 percent to 56.5825 per dollar.

The government in the budget raised spending on the poor to court support before elections, while relying on higher taxes, asset sales and subsidy cuts to trim the deficit.

Chidambaram is targeting a shortfall of 4.8 percent of GDP this fiscal year, part of a road map that seeks a gap of 3 percent by 2017. Standard & Poor’s this month affirmed its BBB-long-term India rating, while keeping the outlook negative.

“High fiscal deficits and a heavy government debt burden remain the most significant constraints on our sovereign ratings on India,” the company said.

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