Government's spending curbs to push down India's GDP growth further

Asia's third-largest economy, which grew 8.5 per cent in the year ended March 2011, will grow less than 8 per cent or, perhaps, around 7.0 per cent this year, thanks to tighter spending curbs by the government.

The finance ministry has issued directives to various departments to stop asking for more funds and to hold back on hiring for the rest of the fiscal year, which ends in March 2012.

While in normal years, the various ministries get to meet additional spending needs, this time the finance ministry has declined to meet their demands, citing fiscal restrains despite inflation of nearly 10 per cent.

The move has been prompted both by a slowing of tax collections and drying up of the market for funds. Net tax collections in April-August were up only 4.6 per cent year-on-year, compared with nearly 30 per cent a year earlier.

For April-August, India's fiscal deficit was Rs2,74,000 crore ($55.86 billion), or 66.3 per cent of the full-year target of Rs4,13,000 crore.

Slowing growth and reduced tax receipts mean the government's fiscal deficit for the year could widen to as much as 5.8 per cent of gross domestic product, compared with the target of 4.6 per cent.