India's efforts to rein in its high fiscal deficit are unlikely to succeed, with the budget gap seen remaining at 4.8 percent of gross domestic product this year as revenues slip on slower growth, according to a Reuters poll.
The poll of 11 economists showed the government's revenues falling short of its budget target by a median 117.5 billion rupees ($2.6 billion), as growth in Asia's fourth-largest economy slows to 6.1 percent in the year to March 2005 from a robust 8.2 percent expansion in the previous year.
"We think the government's 7 percent GDP growth assumption is a little optimistic and there have been cuts in import duties recently," said Brian Coulton, Senior Director Sovereigns at Fitch Ratings.
Economists said the government's revenue growth assumptions had been far too ambitious and collections were likely to fall short of targets as growth slowed by erratic monsoon rains in the farm-dependent economy resulted in lower tax payouts by companies. India's new communist-backed Congress-led government estimated in its first budget in July that tax revenues would grow at a fast clip of 25 percent to 2.34 trillion rupees.
With growth pegged at 7 percent, the government had hoped to curb the deficit to 4.4 percent of GDP, or 1.37 trillion rupees.
Official data released in August showed the April-July fiscal deficit at 36.7 percent of the target for the full fiscal year.
The government's stand on not privatising profitable state-owned firms would also hurt its receipts, analysts said.
"The fiscal pressure could mean additional government bond issuances of around 150-200 billion rupees," said Dhananjay Sinha, economist at ICICI Bank.
"This can put upward pressure on market yields."
The government's efforts to discipline public finances are expected to founder after a recent sharp surge in inflation forced authorities to cut duties on oil products and commodities like steel and edible oils.
Finance Minister Palaniappan Chidambaram said last month the government had taken a deliberate fiscal hit by cutting duties to counter the spike in inflation.
India slashed import and excise duties on fuels like petrol and diesel in mid-August, a move that cost it 25 billion rupees.
Economists said ironically, the high level of inflation - at a 3-1/2 year peak of 8.33 percent in the year to Aug. 28 - would also help offset revenue losses to an extent, as higher manufactured prices could result in higher nominal collections.
"The extent of revenue slippage from budget estimates may not be very significant, because inflation is higher than expected, and this will boost nominal revenues," said Prasenjit Basu, managing director at Singapore's Robust Economic Analysis.
Economists said some belt-tightening by the government on the expenditure front could also be expected given that it was now bound by a new fiscal responsibility law to curtail its deficits.
"We are already seeing some clear evidence of restraint on expenditure, which is an encouraging sign," said Rajeev Malik, economist at JP Morgan Chase, Singapore.