India Says Challenging to Meet Next Fiscal's Budget Deficit Goal

  • Says FY17 budget deficit goal may need to be reassessed
  • Higher tax collections to help meet FY16 deficit target

India warned that it may have to reassess its budget deficit projections for the next fiscal year if growth slows, though higher tax revenues will offset a shortfall in asset sales and help meet this year’s target.

The government’s steps to boost taxes will help it reach its deficit target of 3.9 percent of GDP in the year through March 2016, the Finance Ministry said in its mid-year review published Friday. The 3.5 percent goal for the following 12 months could be pressured by an expected increase in state salaries and higher military pensions, it said.

"The fiscal outlook for next year is looking challenging," the report stated. "Unless buoyancy gains continue to be registered, declining nominal GDP growth will place a stress on revenue collections."

India’s GDP will expand 7 percent to 7.5 percent this fiscal year, Finance Minister Arun Jaitley told lawmakers this month. While still among the fastest in the world, the pace is lower than the previous forecast of 8 percent as a gridlock in parliament stalls crucial bills and China’s slowdown jeopardizes global growth.

Bonds Drop

Bonds dropped after the report. The yield on the sovereign note due 2025 rose to 7.73 percent as of 1:04 p.m. in Mumbai from 7.71 percent.

However economic reforms and low inflation will keep the interest rate regime "benign," the Finance Ministry said. Global oil prices, which have more than halved over the past year, are unlikely to rise soon or dramatically, it added.

Lower crude costs benefit India, which imports about 80 percent of its oil. The central bank cut its benchmark repurchase rate four times in 2015 to 6.75 percent and this month said it will use any space for further accommodation.

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