Global slump may push India's fiscal deficit up

JAY DESHMUKH, Agence France-Presse, Bombay

India's year to March 2002 fiscal deficit is seen rising to five percent of gross domestic product (GDP) as a result of the terrorist attacks in the United States and a worldwide economic slowdown, dealers said Friday.

Finance Minister Yashwant Sinha had targeted a fiscal deficit at 4.7 percent of GDP in the budget to March.

Analysts said the increased fiscal deficit was due to an expected rise in oil prices, a falling rupee, volatile stock markets and an overall slowdown in the global and local economies.

The government was likely to increase public spending, raising the fiscal deficit, to beat these factors, they said.

"I see the fiscal deficit at five percent of GDP for the year to March. It will definitely overshoot the 4.7 percent target projected by the finance minister," Gujarat Ambuja chief finance controller Anil Singhvi said.

India already experienced a slowdown in GDP growth for the three months to June at 4.4 percent against 6.1 percent a year earlier.

Analysts said the government was in a tight situation with falling tax collections and pressure to increase expenditure to trigger growth.

While oil prices were currently low, U.S. military action against suspected terrorist camps in Afghanistan in response to the Sept. 11 attacks in the New York and Washington might change that.

Every dollar increase on a barrel of crude oil would increase India's import bill by five billion rupees (US$100 million), estimated HSBC Securities economist Vinay Patel.

To combat a possible economic crisis, India's central bank has already announced a cut in interest rates for loans offered to exporters and a special financial package for six valuable commodities including pharmaceuticals, iron and steel.

Analysts expect the Reserve Bank of India to cut interest rates across-the-board to boost credit offtake by companies and kick-start the economy.

Stock dealers also believe a reprieve may come from an economic stimulus package under consideration in the U.S. valued at up to $75 billion.