By Cherian Thomas Feb. 16 (Bloomberg) -- India's outgoing coalition projected a smaller budget deficit next year, leaving the next government that may be voted in by May to decide on economic stimulus measures.
The budget shortfall will narrow to 5.5 percent of gross domestic product by March 31, 2010 from an estimated 6 percent in the current fiscal year, Foreign Minister Pranab Mukherjee<http://search.bloomberg.com/search?q=Pranab+Mukherjee&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1> said today in parliament in New Delhi. The interim budget didn't contain any tax changes. Mukherjee said the new administration will have to increase spending by as much as 1 percent of GDP to protect Asia's third- largest economy from a global recession that may "continue through the year." The government inaction may prompt the central bank to cut interest rates to spur growth, analysts said. "Attention is now bound to refocus on the Reserve Bank of India," said Robert Prior-Wandesforde<http://search.bloomberg.com/search?q=Robert+Prior-Wandesforde&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>, senior economist at HSBC Group Plc in Singapore. "Some sort of action looks imminent." The central bank has to shoulder the responsibility to stimulate India's economy as state debt, at 80 percent of GDP, leaves the government with little room to spend more or make substantial tax cuts. Governor Duvvuri Subbarao<http://search.bloomberg.com/search?q=Duvvuri+Subbarao&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1> has slashed the central bank's repurchase rate by 3.5 percentage points to 5.5 percent and the cash-reserve ratio by 4 percentage points to 5 percent since October. Prior-Wandesforde expects the two rates to be lowered by another 50 basis points in the "next two or three weeks." 'Greater Burden' "Given the current state of the economy, the government has limited fiscal flexibility, and the central bank will have to take on a greater burden," saidNavneet Munot<http://search.bloomberg.com/search?q=Navneet+Munot&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>, chief investment officer at SBI Asset Management Co. in Mumbai. India's growth in the current financial year may slow to 7.1 percent, the weakest pace since 2003. Exporters may cut 10 million jobs by next month, according to the Federation of Indian Export Organisations<http://fieo.org/> . Mukherjee said "constitutional propriety" demanded the government didn't announce new tax rates or policies in the interim budget today. The statement was aimed at obtaining parliamentary approval for spending in the first four months of the next fiscal year starting April 1, he said. General elections may be held in April and May and soon thereafter the new government will unveil the budget for the remaining eight months of the year ending March 31, 2010. Loan Waivers Prime Minister Manmohan Singh<http://search.bloomberg.com/search?q=Manmohan+Singh&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>'s government, seeking re- election in the polls, wrote off 717 billion rupees ($14.7 billion) of farm loans and raised the salaries of 5 million government employees by 21 percent in the past nine months. Since December, it has cut taxes and announced an extra 200 billion rupees of spending to boost the economy. That's straining government finances because the economic slowdown is also putting the brakes on tax collections. Mukherjee today said total tax receipts in the year to March 31, 2009 may be 6.27 trillion rupees, less than the 6.87 trillion rupee target. Bonds and stocks fell after today's interim budget. Bonds tumbled the most in five weeks as the government prepared to borrow a record 3.62 trillion rupees in the next fiscal year. The yield on the key nine-year bonds gained 25 basis points to 6.42 percent. The benchmark Sensitive index<http://mail.google.com/apps/quote?ticker=SENSEX%3AIND> declined 3.4 percent to 9305.45 on the Bombay Stock Exchange as the government failed to announce any incentives to boost the economy. Still, Mukherjee stepped up spending outlays for a rural jobs program, education, drinking water and sanitation, measures that will appeal to the electorate in a nation where 70 percent of the population lives in the countryside. Credit Rating Mukherjee said the new government must focus on reducing the budget deficit as soon as possible when the economy revives. James McCormack<http://search.bloomberg.com/search?q=James+McCormack&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>, head of Asia sovereign ratings at Fitch Ratings in Hong Kong, said failure to cut the deficit "could undermine" India's economic growth prospects and put at risk its ability to continue to attract capital. India received an annual average $10 billion of foreign investments between 2001 and 2003. Inflows from companies including General Motors Corp<http://mail.google.com/apps/quote?ticker=GM%3AUS>. andRoyal Dutch Shell Plc<http://mail.google.com/apps/quote?ticker=RDSA%3ALN>. rose to $108 billion in the 12 months to March last year, helping the economy grow <http://mail.google.com/apps/quote?ticker=INGDPY%3AIND> at a record average pace of 9.3 percent in the three years to March 2008, Morgan Stanley economist Chetan Ahya<http://search.bloomberg.com/search?q=Chetan+Ahya&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1> said. "India's fiscal dynamics have worsened significantly in the last few months," said Rajeev Malik<http://search.bloomberg.com/search?q=+Rajeev+Malik&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>, a Singapore-based economist at Macquarie. "It could trigger the wrath of the credit rating agencies." Malik estimated the federal government's budget deficit could touch 8.1 percent of GDP by March 31, 2009, if the government includes bonds sold during the year to subsidize fuel and fertilizer in its books. India regards these bonds as "off- budget" items and doesn't show them in state accounts. Fitch last week maintained India's credit rating at BBB-, its lowest investment grade, because of rising debt that it estimates at about 80 percent of GDP. Standard & Poor's also places India's credit rating in its lowest investment category. http://www.bloomberg.com/apps/news?pid=20601091&sid=aqK.PyvAPnf4&refer=india -- Our duty is to encourage every one in his struggle to live up to his own highest idea, and strive at the same time to make the ideal as near as possible to the Truth. *Swami Vivekananda* --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. 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