India is prepared to widen this year’s budget deficit to 4.8% of GDP, up 50 bps
from the 4.3% target set in February, a government official said. Higher energy
subsidy costs linked to the Iran war have strained public finances and made
meeting the February target unlikely — the first miss since the pandemic. The
finance ministry has told rating agencies any fiscal deterioration reflects
external uncertainty rather than a change in fiscal discipline. India last
missed its budget target in FY2020-21, when the deficit rose to 9.2% of GDP
versus a 3.5% target; the government has pursued since fiscal consolidation.
Authorities say they will reassess the fiscal outlook later this year as non-tax
receipts and subsidy needs to become clearer, and are evaluating departmental
spending cuts to contain the deficit. The scale of cuts will hinge largely on
fertilizer prices; falling global fertilizer prices would lower subsidy bills
and reduce the need for broad spending curbs.
