India willing to let fiscal deficit widen to 4.8% of GDP, Bloomberg News reports
Let's make fiscal deficit feel simple. The fiscal deficit is just the gap between what the government earns and what it spends, and India is now willing to let it widen to 4.8 percent of GDP, up from the 4.3 percent target for this year. What's pushing it up? The war in Iran has raised crude oil prices, fuel and fertiliser subsidies are climbing, and India imports about ninety percent of its oil. So for your CLAT prep, just remember the fiscal deficit is measured as a percentage of GDP, and oil shocks can force the government to loosen that target.
India is preparing for a wider-than-expected budget deficit this year, Bloomberg News reported on Friday, citing an official familiar with the matter, as the war in Iran raises fuel subsidy costs and pressures government finances.
Reuters could not immediately verify the report and has sought comment from India’s finance ministry.
The country, the world’s third-largest oil importer and consumer, is willing to let the budget gap widen by as much as 50 basis points to 4.8 per cent of GDP compared with the 4.3 per cent target for this fiscal year that started on April 1, according to the report.
Higher crude prices and supply disruptions after the closure of the Strait of Hormuz have hit India, prompting state retailers to raise petrol and diesel prices by about 8 per cent. The government has also cut subsidies on cooking gas cylinders for households.
India ships in about 90 per cent of its oil and is one of the countries most-exposed to prolonged Iran war-related disruptions to global energy supplies.
The government’s fertiliser subsidy is likely to jump 20 per cent in the fiscal year, a government official had said earlier.
Authorities are keeping their options open for now and plan to reassess the fiscal outlook later this year, when there is more clarity on non-tax revenues and subsidy needs, Bloomberg News reported.
The government is also evaluating possible spending cuts across ministries to contain the deficit, the report said.