Analysts suggest maintaining fiscal deficit at 5.3% will be a challenge for the finance minister.
Not everything is hunky-dory as India's finance minister P Chidambaram readies for the UPA's final Budget in this term. His financial wizadry in crafting the fiscal consolidation roadmap will be widely watched by his national and international audience.
Analysts suggest maintaining fiscal deficit at 5.3 percent will be a challenge for the finance minister. In his roadshows, finance minister P Chidambaram had gallantly said: "Watch the upcoming Budget closely: it will prove that we mean business. Under no circumstance will I agree to a breach of the fiscal deficit target of 5.3 percent of GDP," This view was bolstered after the government cancelled its last FY13 bond auction and is said to have an estimated cash surplus of Rs 90,000 crore.
Food subsidy Bill: A threat to FM's 5.3 percent deficit maintenance?
Economists were initially working with a deficit figure of 5.5-5.8 percent which was much higher than the government's estimate of 5.1 percent (which was later revised up to 5.3 percent). But reports suggest that few millions more will have to inducted in the proposed National Food Security Bill (NFSB), reportedly a pet issue of Congress boss Sonia Gandhi, is a direct threat to the finance minister's efforts to put the fiscal accounts in order.
The talk is that providing cheap grain to nearly 70 percent of India's population could increase the country’s subsidy bill for fiscal 2014 to Rs 1.2 lakh crore, which would include an additional Rs 45,000-Rs 50,000 crore under NFSB. In fiscal 2013 itslef, the actual spend is said to have exceeded the budgeted Rs 75,000 crore. The question, and by extension fear, now is that the figure can very well be go above Rs 1.2 lakh crore.
The bill, if passed, will come at a time when the Indian population was hit by spiralling prices of basic goods such as rice and wheat.
Ashok Gulati, chairman, Commission for Agricultural Costs and Prices told CNBC-TV18 that if rice is offered at Rs 3/kg and wheat at Rs 2/kg, along with a greater inclusion of population, "then I do not think there is any escape (from escalting cost)." (Catch full interview here)
He calculated that the real cost will be much higher because it involves spending on infrastructure. Grains would have to be moved from one state to another and railways are choked; so fresh investments have to be made in railways, in stocking facilities and in the basics of logistics.
Below-consensus December IIP number, high trade deficit and a downward revision of GDP growth projection have been a talking point of economists and market pundits. News like record FII inflows and January WPI registering a 3-year low of 6.6 percent had done little to lift public mood. Will the need for social safety net then strain the current fiscal situation? We will know by next week.