Exclusive: India eyes $15 billion rollover of subsidy costs into next budget

Thu Oct 24, 2013 5:34pm EDT
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By Rajesh Kumar Singh

NEW DELHI (Reuters) - India's finance minister is finding it harder and harder to meet the government's budget promises and may sweep as much as $15 billion in subsidy costs into next year's accounts to ensure he hits fiscal targets ahead of national elections, ministry officials say.

The finance minister, P. Chidambaram, insists that the fiscal deficit target of 4.8 percent of GDP for the year to March 31, 2014, is a red line that will not be breached. The worst economic downturn since 1991 and a fall in the rupee to a record low have undermined budget assumptions for some months.

But finance ministry officials said the window to raise domestic fuel prices sharply, which would cut subsidies, is closing with state and national elections drawing closer, so shifting some costs into the 2014/15 budget is inevitable.

"It's a given," said one official, who declined to be identified.

The worst-case scenario as of now is that $15 billion in costs will have to be rolled over into next year's budget, the ministry officials said. This assumes that there will be no substantial increase in domestic fuel prices to offset the ballooning subsidies.

By rolling over some costs, Chidambaram can tell voters in the run up to the elections, which must be held by May, that the government met its deficit target. But equally, he will be shackling the next government with costs that could blunt its ability to stimulate an economic recovery.

"Whatever we need to do, we will do. But the fiscal deficit target will be met," said a finance ministry official. "No one should be in doubt about that."

Meeting the target is important also to stave off the ire of ratings agencies as India's credit status sits just one notch above junk. A loss of its investment grade rating would probably increase the government's borrowing costs.   Continued...

A worker arranges food packets inside a retail store in Kolkata October 24, 2013. REUTERS/Rupak De Chowdhuri