New controversy looms over India’s fiscal deficit before budget

A former top official in India’s Finance Ministry claims the government is understating the fiscal deficit, raising questions about the figures weeks before the annual budget is due to be released.

India targeted a budget gap of 3.3% of gross domestic product for the year ending March - one that is widely expected to be missed by as much as 0.5 percentage points as asset sale plans falter and an economic slowdown hurts tax collections.

Subhash Chandra Garg, a former finance ministry official who worked on the current fiscal year’s budget targets, sees the real shortfall - which includes on- and off-budget borrowings - widening to at least 4.5% against 3.55% estimated previously.

Concerns have been raised in the past, including by the Paris-based Organisation for Economic Co-operation and Development, over the transparency of off-budget spending by the government.

While the law mandates the administration to narrow the gap to 3% by next financial year, Garg expects the rules to be tweaked to push the goal by five years.

“A lot of people would become somewhat more cynical about the government’s real commitment for fiscal consolidation considering non-achievement of this goal even after 15-16 years of its original adoption and it being pushed for newer date every 5-7 years,” he wrote in a blog Wednesday.

Finance Minister Nirmala Sitharaman will give the deficit update for this year as well set the target for next year in the annual budget scheduled for Feb. 1.