Indian FM warns on deficit

08:39, December 31, 2009      

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India's budget deficit, forecast to balloon to a 16-year high this year, can't be sustained for a long time, said Finance Minister Pranab Mukherjee.

"We shall have to strike a balance between the requirements of the economy and the capacity of the economy to bear this level of fiscal deficit," Mukherjee told reporters in New Delhi. Immediate withdrawal of fiscal stimulus may not be the "correct approach", the minister said.

India's budget deficit is forecast to increase to 6.8 percent of gross domestic product in the 12 months through March 2010. A widening deficit made Indian bonds the worst performers this year among the top 10 local-currency debt markets in Asia outside Japan, with a 5 percent loss, according to indexes compiled by HSBC Holdings Plc.

Indian stocks dropped after the finance minister's comments, snapping a four-day rally. The Bombay Stock Exchange's Sensitive Index, or Sensex, declined 0.4 percent to 17341.31 as of 12:21 pm in Mumbai.

Mukherjee is borrowing a record 4.51 trillion rupees ($96.5 billion) this year to fund stimulus packages and revive growth in Asia's third-largest economy. India's gross domestic product expanded 7.9 percent in the three months to Sept 30 from a year earlier, the quickest pace in six quarters.

India's local-currency rating outlook was raised to positive from stable by Moody's Investors Service on Dec 15, which cited a strengthening economic recovery.

The change was "prompted by increasing evidence that the Indian economy has demonstrated its resilience to the global crisis and is expected to resume a high growth path with its underlying credit metrics relatively intact", Moody's sovereign analyst Aninda Mitra said in a statement.

Source: China Daily
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