India must tackle a jump in spending on fuel and food subsidies sooner rather than later, finance minister P Chidambaram said, part of a series of steps aimed at stabilising the economy to be announced ahead of an election due within seven months.
Asia’s third largest economy is suffering its longest and deepest slump in at least a decade. Rating agencies have threatened to downgrade its sovereign debt to “junk” status, and the government is racing to revive growth in a bid to return to power for a third consecutive time.
“We’ve done a lot of things, but we have to do many more things, and I think we will do them in the next few weeks and months, both by the government and by the central bank,” Chidambaram told Reuters in an interview on Monday.
India imports nearly 80% of its oil needs and a sharp decline in the rupee’s value since May has made government fuel subsidies more costly.
“On the government side, sooner (rather) than later we will have to address the issue of higher subsidies than budgeted, on both fuel and food,” he said, on the eve of a week-long trip to the United States that includes an investor roadshow in San Francisco.
Last month, the government deferred a plan to raise diesel prices by close to 10% to offset the damage caused by the weaker rupee. Oil subsidies are now estimated at more than `90,000 crore for the current fiscal year — nearly 40% more than budgeted.
Chidambaram, who is trying to win back investor confidence in large part by reducing a wide fiscal deficit, said India’s slowdown would impact revenues and indicated he could rein in spending by some government departments.