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Last Updated:[18-11-2013 05:17:42 EDT] Zoom in Zoom out Back to Tradenews

The Containment Act- Indian Government trying to hit fiscal deficit target, as tax revenues crash.

tradenews The Indian government is in a minor state of bother, tax revenues aren’t hitting the expected numbers and other income sources that add to the government’s coffers aren’t signalling great returns as well. While subsidies are incrementing, the Indian government, represented by its Finance minister P Chidambaram is trying its best avoid exceeding the fiscal deficit limit, by slashing heavily on spending and other expenditure.

And the efforts are in earnest seriousness- already, the ministry has cut down central spending by over 80,000 crore last year, while ensuring that the fiscal deficit danger mark of 4.8% of gross domestic product isn’t breached. The government’s motivation is the ‘not so subtle’ hints put down by various rating agencies that have threatened to downgrade India if the situation doesn’t improve. The tax revenues are falling short of expected targets, though the central government is committed to subsidies and disinvestment. The latter expected to fetch over 54,000 crore in the current fiscal, including 14,000 crore expected from the sale of stakes in privatised companies such as Hindustan Zinc and Balco. Thus far, only 1,323 crore of this target has been achieved.

Thankfully, the government is supremely confident that it won’t breach the maximum fiscal deficit mark. The finance ministry is counting that the backlog of funds from the previous year will allow it to make the slash in spending less severe as compared to the last financial year. Revenue generation will be principally hinged on the higher dividend as expected from state-owned companies and the support of the Reserve Bank of India. Independent analysts feel that the Indian government might have to cut expenditure at the rate of 22% if it intends to meet the 4.8% fiscal deficit target, head on. Maybe, the government isn’t left with any reasonable choice- the global rating agency Standard & Poor has already marked India a depressing ‘BBB’ (barely investment grade) and is closely monitoring the current fiscal situation. Another slipup and the situation can get real troublesome.

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