Balancing growth, inflation, fiscal deficit a challenge in fiscal year shead: S&P

The Indian government is likely to face a challenging year, trying to maintain economic growth, control inflation, and achieve fiscal consolidation, said Standard & Poor's Ratings Services today.

In releasing the annual budget, the finance minister has sought to rein in inflation by capping the increase in total expenditure. The budget has also stepped up social spending to soothe the pain for the economically weaker sections.

"However, we believe the government may struggle to meet its fiscal deficit target for 2011-2012 as pressure to step up spending mounts," said Standard & Poor's credit analyst Takahira Ogawa. "Unlike in the previous fiscal year, it will also not have any one-off revenues to fall back on."

In fiscal 2010-2011, the government benefited from revenues from 3G licensing and proceeds from divestment of state-owned corporations. Such inflows had boosted 2010-2011 revenues by about 1.5 per cent of GDP.

Finance Minister Pranab Mukherjee has sought to cap the increase in total budget expenditure at 3.4 per cent (over revised estimate for 2010-2011) to Indian rupees (INR) 12.6 trillion. The government has also targeted fiscal deficit for 2011-2012 at 4.6 per cent of GDP, slightly less than 4.8 per cent of GDP recommended by the 13th finance commission in December 2009, and the revised estimate of 5.1 per cent for 2010-2011.

The finance minister announced that amendments to the fiscal responsibility and budget management bill will be introduced in 2011-2012 to maintain fiscal prudence in the medium term.