The Straits Times
Published on Nov 16, 2012

India will struggle to meet new 2012/2013 deficit target


NEW DELHI (REUTERS) - India will struggle to meet its already swollen deficit target this year after a dismal response to this week's auction of mobile phone licences and a battle to sell stakes in state companies, Indian finance ministry officials privately concede.

Global rating agencies have threatened to downgrade India's sovereign credit rating to junk if it fails to put its fiscal house in order. Analysts said while the disappointing auction would likely not be a deciding factor, it underscored the challenges facing the government in trying to slash the deficit.

Just last month, subdued tax revenue and higher spending on subsidies forced the government to revise its fiscal deficit target to 5.3 per cent of GDP for the current financial year from a previous target of 5.1 per cent.

In setting the new target, the government was banking heavily on generating billions of dollars from the auction of second-generation (2G) mobile phone licences. But the auction this week yielded just under 25 per cent of the targeted 400 billion rupees (S$9 billion), a result that caught officials off-guard.