India Pledges to Cut Deficit, Cap Debt to Avert Downgrade

Nov. 25 (Bloomberg) — Top Indian officials said they will cut the widest budget deficit among the world’s largest emerging markets and curb public debt, as the Asian nation seeks to avert a credit-rating downgrade.

The government is “optimistic” it will rein in the
shortfall for the year through March 31 to 5.3 percent of gross domestic product from the previous year’s 5.8 percent, and has no plan “at the moment” to increase its record borrowing
program, Finance Minister Palaniappan Chidambaram said yesterday. The deficit will be cut 0.6 percent annually for the next five years, Chakravarthy Rangarajan, chief economic adviser to Prime Minister Manmohan Singh, said yesterday in Kolkata.

“I would like to, with all the conviction and command,
reiterate that the government is fully committed to contain the fiscal deficit within 5.3 percent,” Economic Affairs Secretary Arvind Mayaram said yesterday at a conference in Mumbai. “We have a clear program of disinvestment and we are confident of meeting our targets,” he said, about 90 minutes before
Chidambaram spoke in the western city of Pune.

Credit Agricole CIB said last week that financial markets
are pricing in an increasing likelihood of a credit rating
downgrade to junk status. The threat of losing the nation’s
investment-grade sovereign ranking prompted Singh to reduce fuel subsidies in mid-September to tackle the fiscal gap, and boost investment by allowing foreign investment in retailing and
aviation.

Standard & Poor’s and Fitch Ratings lowered India’s
sovereign credit outlook this year, citing a widening budget deficit, and a slump in economic growth and investment in Asia’s third-biggest economy. Both companies rank India’s debt BBB-, the lowest investment grade.

Growth Outlook

The government is also looking to curtail expenditure,
Mayaram, one of the top bureaucrats in the finance ministry, said in a speech at a conference on Asian capital markets .

The $1.8 trillion economy is likely to expand 5.5 percent
in the three months ended September, Chidambaram said, matching the preceding quarter’s expansion. Economists predict GDP will increase 5.3 percent from a year earlier, according to the
median estimate in a Bloomberg survey before data due Nov. 30.

Central bank Governor Duvvuri Subbarao last month cut the
Reserve Bank of India’s growth forecast for the current fiscal year to 5.8 percent, the slowest pace in a decade, from 6.5
percent. He raised the monetary authority’s estimate for gains in wholesale prices to 7.5 percent from 7 percent.

The RBI has kept benchmark borrowing costs unchanged at 8
percent at its last four policy reviews to curb the worst
inflation among the so-called BRIC nations, comprising Brazil, Russia, India and China.

An auction of wireless spectrum this month helped raise 94
billion rupees ($1.7 billion), less than 25 percent of the
target, straining state finances. The auction isn’t yet complete and the government is confident of meeting its goal of raising 400 billion rupees from the sale, Chidambaram said yesterday.

“Fiscal consolidation is a necessary pre-requisite for
sustained growth,” Rangarajan said in a speech to businessmen.

To contact the reporters on this story:
Kartik Goyal in New Delhi at
kgoyal@bloomberg.net ;
Pradipta Mukherjee in Kolkata at
pmukherjee7@bloomberg.net ;
Jeanette Rodrigues in Mumbai at
jrodrigues26@bloomberg.net

To contact the editor responsible for this story:
Stephanie Phang at
sphang@bloomberg.net

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