RBI: fiscal pressures not fully reflected
Tuesday, 27 May 2008

REUTERS, NEW DELHI - India's fiscal deficit continues to be among the highest in the world and underlying pressures are not entirely showing up in headline fiscal numbers, Reserve Bank of India Governor Yaga Venugopal Reddy said on Monday.

"We are seeing the centre's fiscal situation is improving but I think there are several underlying fiscal pressures not entirely evident in the numbers," Reddy told a conference in New Delhi.

India aims to bring down its fiscal deficit to 2.5 percent of GDP for the 2008/09 financial year, compared to 3.1 percent in 2007/08, but analysts fear a $17 billion scheme to write off the debts of millions of small farmers and tax cuts could trip up efforts.

According to the Fiscal Responsibility and the Budget Management Act operationalised in 2004/05, the government must reduce its fiscal deficit to 3 pct of GDP and wipe out its revenue deficit by 2008/09.

But it has already missed its revenue deficit target and expects it to be 1 percent of GDP in the year to end March 2009.

Reddy said the fiscal deficit as a percentage of gross domestic product continues to be among the highest in the world.

Market borrowings finance more than half of the gross fiscal deficit and the rest of the gap is filled by small savings, provident funds, reserve funds and deposits and advances.

The gross fiscal deficit covering both state and central government is estimated at 5.5 percent in 2007/08, according to official estimates, down from 9.5 percent in 2002/03.

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