The country’s fiscal deficit during April to December jumped to $44.5 billion as the cash-strapped government stepped up spending to stimulate a slowing economy.
Analysts and bond dealers say higher spending and a revenue shortfall as economic activity stumbles will strain government finances, push up borrowing and keep the pressure on bond yields despite a series of rate cuts by the central bank.
The government has pledged to spend an extra Rs 1,47,000 crore during this financial year to stimulate an economy hit by the global slowdown, pay off farmers' debt, increase subsidies and raise wages of government staff, widening the fiscal gap.
Government data showed on Friday the fiscal deficit increased to Rs 2,18,000 crore in the first nine months of the fiscal or 163.8 per cent of the full-year target.
The deficit was at Rs 1,77,000 crore until November. "Fiscal stress is clearly evident. Revenues are going to fall short of annual target. Borrowings will also go up. Our prediction of fiscal deficit is 6.2 per cent of GDP,” said DK Joshi, principal economist with CRISIL.
In February, the government set a fiscal deficit target of Rs 1,33,000 crore, or 2.5 per cent of gross domestic product, for the 2008-09 fiscal year, lower than 2.8 per cent in the previous year.
But the finance ministry and central bank are now forecasting a wider fiscal gap by end-March. "Interest rate cycle is on the downside but the government borrowing is heavy to feed the additional spending to prevent a further slowdown. Hence, the scope for yields to go down is bleak," said Baljinder Singh, a trader at state-run Andhra Bank.
Until December, the government's total expenditure stood at Rs 5,97,000 crore or 79.5 per cent of the full-year target.
Total receipts in the first nine months were at Rs 3,79,000 crore, or 61.4 per cent of annual budget target, with tax receipts at Rs 3,10,000 crore.