India to Miss Fiscal Deficit Target

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Jan. 19 – Prime Minister Manmohan Singh said that fiscal deficit will continue to deepen in the next fiscal year as India continues to pump in money to stimulate consumption. “We will have to tolerate a high fiscal deficit for the next year to accommodate expenditure needed to stimulate the economy,” he told the Wall Street Journal. India is expected to miss its fiscal deficit target of 2.5 percent for this year. The fiscal year runs from April to March.

The government has already announced plans to spend Rs. 200 billion (US$4.1 billion) primirarily to boost the country’s ailing infrastructure sector. Key interest rates have also been slashed significantly. The Reserve bank of India cut the repurchase rate by 3.50 percentage points, the cash reserve ration by 4.0 percentage points and the reverse repurchase rate by 2 percentage points since October. Inflation which was at a 16 year high of 12.91 percent last August has also cooled significantly to 5.24 percent as of the first week of January.

Riding on domestic consumption which constitutes 67 percent of India’s GDP, the country doesn’t expect to be too badly affected by the global slowdown. Nonetheless, Singh’s government expects growth to slowdown to between 6.5 percent and 7 percent from a more than average nine percent growth in the last three years.