Tagged: Fiscal Deficit
Lucrative 3G sale may help bridge fiscal gap
Reuters | Thu May 20, 2010 | 8:12pm IST
The government’s $14.6 billion haul from the 3G mobile spectrum sale could prompt a brief, sharp spike in short-term interest rates as auction winners pay up, draining cash from the banking system. The windfall also provides the government with some welcome spare cash, which it would use to reduce its stubbornly high budget deficit. However, economists and traders say first the government would wait to see how other revenue streams pan out and whether there is any upside surprises to growth projections to ease pressure on the budget. Although the windfall has been welcomed by the deficit-strapped government, the government has not said how it will manage the proceeds.
Indeed, the windfall may grow. Combined with the proceeds of an upcoming auction of broadband wireless spectrum, the government could raise a combined 921 billion rupees ($19.7 billion) from selling the rights to its airwaves, Morgan Stanley says. The success of a programme to sell minority stakes in state companies is another variable that could influence the government’s fiscal management. India’s fiscal deficit was at a 16-year high of 6.9 percent of GDP in the last fiscal year, and it has set a target to cut that to 5.5 percent this year. "The government could be able to reduce its fiscal deficit to 5-5.2 percent provided it manages its expenditure and revenues within target," D.K. Joshi, principal economist at CRISIL said.
SUDDEN CASH CRUNCH
The government is most likely to ask winning bidders to make one-time payments for the allotted spectrum and the sudden outflow from the banking system could cause a temporary cash crunch. Tight conditions may also be exacerbated by corporate advance tax payments due in mid-June. Short-term rates like one-year
Mukherjee seen winning support in fuel price uproar
Reuters | Wed Mar 3, 2010 | 3:44pm IST
The finance minister appeared to be closer to winning key political support for his controversial hike in fuel prices despite an uproar that forced the closure of parliament on Wednesday. Pranab Mukherjee’s budget move to raise fuel prices for the first time since July has met with anger from both the opposition and ruling coalition allies, underlining the challenge in cutting the fiscal deficit from a 16-year-high of 6.9 percent of GDP. The government raised petrol prices about 6 percent and diesel by 7.75 percent in last week’s budget to help increase revenues and cut the budget deficit. But several allies, which help give the government a parliamentary majority, have signalled they will not withdraw support for the ruling Congress party on this issue.
"There is no question of the DMK withdrawing support or the alliance breaking up," Kanimozhi, a senior leader of the DMK, a key regional party that backs the government in parliament, was quoted as saying by the Hindustan Times newspaper. Despite some concerns, the Congress party has not opposed Mukherjee’s decision. "He (Mukherjee) did not talk about a rollback in the increase of fuel prices. He seemed to stand his ground," Jagdambika Pal, a Congress lawmaker, said after a meeting between the finance minister and Congress lawmakers. The row is a test of how far the government can push reforms to liberalise state-regulated sectors like fuel. Strong opposition could make the government more cautious in moving ahead with further reforms such as price liberalisation. A final decision may only rest with Sonia Gandhi, head of Congress and India’s most powerful politician who has a history of supporting pro-populist policies aimed at benefiting the poor, the base of support for the Congress party.
Finmin urges fiscal discipline; bond market wary
Reuters | New Delhi | Thu Feb 25, 2010 | 7:46pm IST
The government should start rolling back its economic stimulus and cap its debt, the finance ministry said on Thursday, forecasting economic growth in years ahead strong enough to make its fiscal targets look achievable. A day ahead of the annual budget, India proposed to more than halve its fiscal deficit to 3 percent of GDP by the year ending in March 2014 and said economic growth should reach 8.5 percent in the year starting in April and accelerate thereafter. “There seems to be a view that they can grow their way out of fiscal purgatory, rather than making large cuts to the absolute level of the deficit,” said Brian Jackson, senior emerging markets analyst with the Royal Bank of Canada in Hong Kong.
A government panel pegged the fiscal deficit for the next financial year at 5.7 percent of GDP, slightly higher than the 5.6 percent forecast by economists in a recent Reuters poll. Bond yields jumped late in the day after Planning Commission Deputy Chairman Montek Singh Ahluwalia said strong growth in 2010/11 could absorb higher borrowing, raising concerns that the government may look to tap bond markets for more than had been expected. The yield on the benchmark 10-year bond ended at 7.83 percent, up from Wednesday’s close of 7.80 Continue reading
Stimulus exit must be gradual – PM economic adviser
Reuters | New Delhi | Fri Feb 5, 2010 | 6:23pm IST
India is in no hurry to roll back economic stimulus measures in one go but efforts will be made in the budget later this month to lower the fiscal deficit, a top government adviser said on Friday. “It will be calibrated and done in a manner that stimulus in the economy continues to persist and at the same time some adjustment is made as far as the deficit is concerned,” said C. Rangarajan, chairman of the prime minister’s economic advisory council. He was speaking to reporters on the sidelines of a business conference in Mumbai. The government had launched two fiscal stimulus packages since October 2008 worth $4 billion, or 0.4 percent of GDP, to help Asia’s third-biggest economy cope with the global credit crunch after Lehman Brothers’ collapse.
The Reserve Bank of India, which cut its key borrowing rate by 275 basis points in four moves between December 2008 and April 2009, raised the banks’ reserve requirement for the first time in nearly 1-½ years in its policy review on Jan. 29. It raised the cash reserve ratio for banks by a higher than expected 75 basis points to 5.75 percent, to be effective in two stages this month. “It has been pointed out Continue reading
Obama to announce partial government spending freeze
BBC NEWS | 2010/01/26 | 17:42:38 GMT
US President Barack Obama is to announce a three-year partial spending freeze aimed at reducing the country’s $1.4tn (£860bn) budget deficit. His first State of the Union address, on Wednesday, will reveal the details. Officials have told US media that defence, some healthcare programmes and the massive economic stimulus package will be unaffected. Critics said the planned savings, expected to cut no more than $15bn off next year’s budget, were insufficient. But officials said the plan would result in savings of about $250bn during the next 10 years.
The spending freeze covers many domestic programmes and departments to which Congress allocates budgets each year, including agriculture, transportation and education and national parks. Security and defence spending, foreign aid, social security and spending on healthcare for the poor and retired would be exempt. The 2009 fiscal year saw a record $1.4tn shortfall. The 2010 deficit is expected to reach $1.35tn, according to US Congress estimates. Continue reading
US in fiscal peril with $12.1 trillion debt
USA TODAY | WASHINGTON | 31 Dec 2009
After $787 billion in stimulus spending and $700 billion in bank bailouts, 2010 is fast shaping up to be the year of the federal budget diet. Bipartisan support is growing in Congress for action to stabilize the nation’s bulging debt, which is now $12.1 trillion. Influential experts from former Federal Reserve Board chairman Alan Greenspan to former comptroller general David Walker have joined the cause. The public debt is the amount owed to individual investors, including foreign countries, but excluding money the government owes to its own trust funds. It has soared from $5.8 trillion to $7.6 trillion this year alone — and is more than half the size of the nation’s economy for the first time since 1956.
Without action to reduce that unprecedented rise in red ink, lawmakers and experts say, Washington risks a fiscal crisis. The Congressional Budget Office projects annual interest on the public debt would be about $800 billion by 2019, but the Heritage Foundation’s Brian Riedl and other analysts estimate it could surpass $1 trillion by then. Foreign creditors could refuse to buy more Treasury securities. The focus is on the White House as President Obama prepares his State of the Union address and 2011 budget. Lawmakers and lobbyists seeking to cut the record $1.4 trillion budget deficit and stabilize the debt want Obama to back the creation of a commission that would recommend spending cuts and tax increases and require a vote by Congress. It’s a process that has worked since the 1980s on military base closings. Continue reading
Economy can grow 7.75 pct in FY10, inflation a challenge
Reuters | NEW DELHI | Wed Dec 23, 2009 | 1:16pm IST
The economy could grow at a faster pace in 2009/10 compared with the previous year although inflation and high fiscal deficit are major challenges for the government, the finance minister said on Wednesday. Surging food prices and faster industrial growth have pushed up headline inflation, putting pressure on authorities to take steps such as importing food items and raising the cash reserve ratio for banks and interest rates to check inflation. The outlook for economic growth during the December and March quarters looked better than previous quarters, Finance Minister Pranab Mukherjee said, adding the economy could expand around 7.75 percent for the full fiscal year that ends in March 2010.
“It would be more appropriate to say that it (growth) would be around 7.5 to 8 percent,” Mukherjee told an industry conference. A 16-year high fiscal deficit of 6.8 percent of gross domestic product projected for 2009/10 (April-March) increased borrowing needs to a record 4.51 trillion rupees and kept bond yields firm this year. “Some of the important issues and challenges in the short-to-medium Continue reading
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