Narayana Murthy requests Chidambaram to set things 'right'

New Delhi: Expressing hope that new Finance Minister P Chidambaram will "set right" things at the earliest, business leader NR Narayana Murthy said on Friday that the government and the opposition should declare that they would never do anything on "retrospective basis".

S&P may cut India rating if govt persists with loose fiscal policy

Ratings firm Standard and Poor's has warned that it could lower India's ratings if it contues with fiscal excesses or if it does not adopt polcies to boost growth.

"We could lower the ratings on India if it continues to have loose fiscal policy or policy setbacks on monetary, financial, and economic fronts, which lower medium-term growth prospects." said S&P's report on Asia- Pacific Sovereigns.

The report assumes significance against the backdop of state election results in which the ruling alliance at the centre has lost in most states. This could force further populism in future budgets in the run up to the Loksabha election at the centre in 2014.

An expansionary fiscal policy (through cuts in taxes, increase in government expenditure) has boosted consumption demand in recent years, noted a report by its local arm Crisil in a report.

Consumption expenditure of the government increased by Rs 5,300 billion between 2004-05 and 2010-11, in comparison to an increase of Rs 1,800 billion in expenditure on capital formation. Of the total direct government consumption expenditure, wages and salaries accounted for almost 50%. The government has also overshot its borrowing for the year.

Currently India's sovereign debt is rated at ' Investment grade' with a stable outlook

The stable outlook balances the country's economic growth potential and external flexibility against still-high government deficits, underlying inflationary pressure and political uncertainties, which may lead to higher government subsidies and stalled reform efforts.

The ratings firm has also said that it could raise the ratings on India if the government significantly reduces its general government deficits. The government could do so in several ways, such as lower or promote more efficient use of subsidies on fuel, fertilizer, and food. The initiatives could improve the expenditure structure of the budget and reduce the impact of potential external shocks on India's fiscal position.

"The central and state governments' commitment to the medium-term fiscal consolidation plan set by the 13th Finance Commission is vital," it said.

The "New Fiscal Responsibility and Budget Management Act," which has not been enacted, will be important to help solidify the fiscal consolidation process. Early implementation of the goods and services tax could also help stabilize and potentially increase government revenues in the medium term.

Budget 2012: Fiscal deficit at 105% of estimates in January

NEW DELHI: With two more months still left in the current financial year, the government has already exceeded its budget estimates for fiscal deficit, indicating that it will breach the target of 4.6% of GDP by a large margin.

At the end of January, the centre had run up a fiscal deficit of 4.34 lakh crore or 105% of the budgeted estimates, as slowing growth depressed direct tax collections and the government struggled to meet its non-tax revenue targets because of difficulty with asset sales.

"This is a direct reflection of fiscal stress and the fact that government has ramped up its market borrowings in the previous quartersaŚwe now expect the fiscal deficit to be 5.9% of GDP," said Indranil Pan, chief economist, Kotak Bank.

Net tax revenue in the first ten months of 2011-12 amounts to only 69% of budgeted estimates and other capital receipts including disinvestments proceeds were only 6.9% of budget estimates.

The proposed stake sale in ONGC, which is expected to net the government nearly 12,000 crore, will provide some relief to the cash-strapped government. During the same period in the previous financial year, fiscal deficit was equal to 58.3% of budget estimates and tax revenues 80% of the target. The government has already announced additional market borrowings worth 93,000 crore in order to finance its growing fiscal deficit. The budget for 2011-12 had pegged market borrowings at 3.58 lakh crore.

The breach will take the fiscal deficit for the year to well above the 4.8% of the GDP set by the 13th finance commission, putting pressure on the government to present a credible fiscal consolidation plan in the upcoming budget. Reserve Bank of India has already raised concerns over the government's expanding fiscal deficit, blaming it for constraining monetary policy and causing inflation. However, economists are skeptical of the government's ability to cut down deficit substantially.

"Consolidation at this stage is very important but the government has little room to cut expenditure given its subsidy regime and social schemes. Also, there are few avenues for raising revenues - so we expect the fiscal deficit could go up to 5.4% in the next fiscal as well," Pan said.