(Adds details, quotes)
By Rajesh Kumar Singh
NEW DELHI, Nov 22 (Reuters) - India's fiscal deficit could
miss the revised official target and swell to as much as 5.6
percent of GDP, a top government official told Reuters on
Thursday, making it tougher for the government to avoid a credit
The comments were the gloomiest scenario for public finances
yet given by the government and follow a failed auction of
mobile phone spectrum last week that dashed its income
Global rating agencies have threatened to downgrade India's
sovereign credit rating to junk if it fails to rein in its
deficit, which is ballooning because of higher spending on food,
fuel and fertiliser subsidies and poor tax receipts.
Just last month, Finance Minister P. Chidambaram raised the
fiscal deficit target to 5.3 percent of GDP for the current
financial year to end-March 2013 from a previous target of 5.1
"Looking at the current trends in revenue and expenditure,
5.3 percent looks tough," said the official, who has direct
knowledge of the government finances.
"There could be a shortfall of about 500 billion rupees
($9.1 billion) in revenue receipts," the official said,
explaining that would add 0.5 percentage points to the original
5.1 percent target.
A second official agreed with that assessment. Both
officials declined to be identified citing the sensitive nature
of the information.
In setting the revised 5.3 percent deficit target, the
government was banking heavily on generating billions of dollars
from the auction of second-generation (2G) mobile phone
licences. But the auction last week yielded just under 25
percent of the targeted 400 billion rupees ($7.2 billion).
The government plans to have an auction of still-unsold
telecom spectrum before March. But the first official said even
with that auction, the government could at best garner only 200
billion rupees for the full fiscal year.
That could force the government to borrow an additional 400
billion rupees from the market, the official said, in the most
negative borrowing scenario the government has yet given.
Private economists polled by Reuters earlier this month had
estimated the government would need to borrow this amount, but
only if the deficit hit 5.8 percent. Heavy government borrowing
is seen as a drag on economic growth, because it drives up
borrowing costs for private investors.
After the auction last week, Chidamabaram said he was still
confident India could hit the 5.3 percent deficit target.
India's federal bond yields rose on the Reuters report. The
benchmark 10-year bond yield rose to as high as
8.23 percent, up 3 basis points from levels before the news. The
yield was last trading at 8.22 percent compared to its 8.21
percent close on Wednesday.
New Delhi is on track to borrow 5.7 trillion rupees, or 5.6
percent of GDP, by February. Every 0.1 percentage point increase
in the deficit is estimated to result in an additional market
borrowing of at least 100 billion rupees.
($1= 55.24 Indian rupees)
(Reporting by Rajesh Kumar Singh; Editing by Prateek