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Drought may see fiscal deficit soaring

Robust revenue receipts helped India contain the fiscal deficit for the first quarter of the financial year to 29.2 per cent of estimates for the full year, but analysts said spending threatened to spin out of control.

Some said extra spending because of a drought in parts of the country could widen the deficit, which the government expects to limit to 5.3 per cent of GDP in 2002-03 (April-March).

Data released on a government website on Wednesday showed the deficit for the same quarter a year earlier was 36.3 per cent of the full year estimate.

Net tax revenue showed a rising trend at Rs 241.51 billion, or 14 per cent of the 2002-03 target of Rs 1,729.65 billion. It grew 10.3 per cent a year earlier.

"Despite rising revenue collections, the imbalance in spending continues. The government has not been able to address the problem of unproductive spending so far," said Saumitra Chaudhri, economic adviser with credit rating agency, ICRA.

Total spending for the first quarter of the financial year which began on April 1 stood at Rs 757.15 billion or 18.5 per cent of the budget estimate of Rs 4,103.09 billion.

"The first quarter usually means spending is more and revenues are slow to pick up. One shouldn't read too much in these figures." D K Srivastava, economist with the New Delhi-based National Institute of Public Finance and Policy.

But he said any further delay in monsoon rains could aggravate the drought, forcing the government to spend more.

"The fiscal deficit in such a scenario would be much higher than expected. It's too early to predict a figure but given the past few years, we have a tendency to underestimate the revenue," said Srivastava.

The June-September monsoon, crucial to India's economy, has been delayed in some areas, affecting several crops.

Agriculture Minister Ajit Singh said on Wednesday the situation in many of the drought-hit areas had worsened.

Financial markets and analysts warn the drought could slow economic growth.

At the same time, severe flooding has hit the northeast of the country, driving millions from their homes and killing hundreds of people. The impact on the economy and the cost of cleaning up has not yet been estimated.

Global ratings agencies say India's stubbornly high fiscal deficit is a big obstacle to raising its sovereign rating which is at junk bond levels.

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