India's fiscal situation is worse than it appears, Prime Minister Narendra Modi's government said in an economic report on Wednesday that called for tough measures to shore up public finances and reduce inflation. The report''''s tone will increase speculation that Finance Minister Arun Jaitley, in presenting his first budget to parliament on Thursday, will give a higher, more realistic fiscal deficit target for this fiscal year than the 4.1 percent of gross domestic product the previous government set.
India risks losing its investment-grade sovereign rating if it fails to get its finances into shape. Many economists believe the last government's accounting understated the size of the deficit, and Jaitley will need to present a credible recovery plan to keep the ratings agencies onside.
The newly-released Economic Survey "shows the gravity of the economic situation that needs correction," Jaitley told reporters after ceremonially placing the report on a table in parliament. "Inflation needs to be moderated further. The fiscal deficit needs downward correction over the next two years," the former corporate lawyer and career politician said.
An annual exercise, the Economic Survey is drawn up by finance ministry advisers and delivered the day before the federal budget. Seen as a blueprint for the government's medium-term economic planning, the report forecast GDP growth of between 5.4 and 5.9 percent in 2014/15. It warned that weak monsoon rains, which are essential for farming, could keep growth closer to 5.4 percent. In June, India''''s central bank forecast growth of 5.5 percent in the financial year that ends in March 2015.
