Analysis: India's deficit-cutting plan faltering as clock ticks

Sun Nov 25, 2012 4:40pm EST
 
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By Ross Colvin and Rajesh Kumar Singh

NEW DELHI (Reuters) - India's finance minister has banned government officials from holding conferences at five-star hotels, restricted travel and ordered a freeze on hiring to fill vacant posts.

A single-minded political veteran who commands both fear and respect in Indian officialdom, P. Chidambaram is squeezing government ministries hard to cut spending wherever they can, and quickly, to help rein in a widening fiscal deficit.

He is a man under pressure and with an eye on the clock.

Four weeks ago to the day, he set himself an ambitious target: to hold the government's fiscal deficit for 2012/2013 to 5.3 percent of gross domestic product, even as skeptical private economists forecast a deficit closer to 6 percent.

But a series of revenue-raising setbacks since October 29 now means it will be almost impossible for the government to meet that target, economists say, and some finance ministry officials privately agree. That increases the risk that credit rating agencies could downgrade India to junk in the coming months.

"This has taken on a very great sense of urgency," said Rajiv Biswas, chief Asia economist at market information and analytics company IHS, as he called on Chidambaram to draw up a credible medium-term road-map for cutting the deficit.

The deficit reduction plan unveiled by Chidambaram last month was panned by economists for being short on specifics and putting a firewall around fuel subsidies and expensive social welfare programs for the country's millions of poor.

A month earlier a deficit reduction panel appointed by Chidambaram had urged the government to cut such spending. Their language was dramatic: India was on the edge of a "fiscal precipice" and the economy was "flashing red lights", they said.   Continued...

 
India's Finance Minister P. Chidambaram attends an interview with Reuters at a hotel during his visit for the G20 meeting in Mexico City in this November 4, 2012 file photograph. India's finance minister has banned government officials from holding conferences at five-star hotels, restricted travel and ordered a freeze on hiring to fill vacant posts. A single-minded political veteran who commands both fear and respect in Indian officialdom, Chidambaram is squeezing government ministries hard to cut spending wherever they can, and quickly, to help rein in a widening fiscal deficit. Picture taken November 4, 2012. REUTERS/Edgard Garrido/Files