India’s fiscal deficit could reach 5.6% of GDP in 2012/13

Updated 23 November 2012
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India’s fiscal deficit could reach 5.6% of GDP in 2012/13

NEW DELHI: India’s fiscal deficit could miss the revised official target and swell to as much as 5.6 percent of GDP, a top government official said, making it tougher for the government to avoid a credit rating downgrade.
The comments were the gloomiest scenario for public finances yet given by the government and follow a failed auction of mobile phone spectrum recently that dashed its income forecasts.
Global rating agencies have threatened to downgrade India’s sovereign credit rating to junk if it fails to rein in its deficit, which is ballooning because of higher spending on food, fuel and fertilizer subsidies and poor tax receipts.
Just last month, Finance Minister P. Chidambaram raised the fiscal deficit target to 5.3 percent of GDP for the current financial year to end-March 2013 from a previous target of 5.1 percent.
“Looking at the current trends in revenue and expenditure, 5.3 percent looks tough,” said the official, who has direct knowledge of the government finances.
“There could be a shortfall of about 500 billion rupees ($ 9.1 billion) in revenue receipts,” the official said, explaining that would add 0.5 percentage points to the original 5.1 percent target.
A second official agreed with that assessment. Both officials declined to be identified citing the sensitive nature of the information.
In setting the revised 5.3 percent deficit target, the government was banking heavily on generating billions of dollars from the auction of second-generation (2G) mobile phone licences. But the auction last week yielded just under 25 percent of the targeted 400 billion rupees ($ 7.2 billion).
The government plans to have an auction of still-unsold telecom spectrum before March. But the first official said even with that auction, the government could at best garner only 200 billion rupees for the full fiscal year.
That could force the government to borrow an additional 400 billion rupees from the market, the official said, in the most negative borrowing scenario the government has yet given.
Private economists polled by Reuters earlier this month had estimated the government would need to borrow this amount, but only if the deficit hit 5.8 percent. Heavy government borrowing is seen as a drag on economic growth, because it drives up borrowing costs for private investors.
After the auction last week, Chidamabaram said he was still confident India could hit the 5.3 percent deficit target.
India’s federal bond yields rose on the Reuters report. The benchmark 10-year bond yield rose to as high as 8.23 percent, up 3 basis points from levels before the news. The yield was last trading at 8.22 percent compared to its 8.21 percent close on Wednesday.
New Delhi is on track to borrow 5.7 trillion rupees, or 5.6 percent of GDP, by February. Every 0.1 percentage point increase in the deficit is estimated to result in an additional market borrowing of at least 100 billion rupees.
The Indian rupee weakened for a third straight session yesterday as persistent dollar buying by oil refiners and absence of major dollar inflows due to a holiday in the US hurt the local unit.
“Personally, I continue to run moderately short USD positions even at this stage. I do not agree to the consensus of 56-57 levels on the pair and think the rupee can appreciate hereon with a second round of capital inflows,” said Samir Lodha, managing director at QuantArt Market Solutions.
The partially convertible rupee closed at 55.21/22 per dollar versus its previous close of 55.11/12.
Traders estimated about $ 200 million worth of dollar demand, which they attributed to Cipla, after the drug maker said it would offer $ 215 million for a majority stake in South Africa’s Cipla Medpro.
The absence of major flows due to the Thanksgiving holiday in the US also weighted on the rupee.
Dealers expect the pair to move in a 54.50 to 55.50 range in the immediate future, pending developments at the winter session of parliament.
“The winter session will be key. The rally seen in the rupee post the reforms announcement was short-lived, but even a small negative is hurting the rupee,” a senior dealer with a state-run bank said. The dealer predicted the rupee to remain in a 54.80 to 56 range, and head above 56 by year-end.
In the offshore non-deliverable forward market, one-month contract was at 55.51, while the three-month was at 56.09.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 55.25 with a total traded volume of $ 4.3 billion.


2 years on, Brexit vote has taken a toll on UK economy

Updated 23 June 2018
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2 years on, Brexit vote has taken a toll on UK economy

  • Big companies are sounding the alarm bell, with plane making giant Airbus this week threatening to pull out of the country, where it employs 14,000, if it gets no clarity on future trade deals
  • The governor of the Bank of England, Mark Carney, estimated recently that average household incomes are around 900 pounds lower than the bank was forecasting on the eve of the referendum

LONDON: While it’s still unclear what Brexit will look like when it happens next year, the decision to leave has already had a clear effect on the economy: households are poorer, companies are more cautious about investing, and the property market has cooled.
In the two years since the vote to leave the European Union, Britain has gone from being a pace-setter among the world’s big economies to falling into the slow lane. And the uncertainty over what relations with the EU will be when Brexit becomes official on March 29, 2019 could make matters worse.
Prime Minister Theresa May’s Conservative government remains split on what those relations should be. There are those who favor a “hard Brexit,” a clean break that takes Britain out of the bloc’s free trade union but also gives it more freedom to strike new trade deals around the world. Others want to keep Britain as close as possible to the EU, Britain’s biggest trading partner, which could mean it has to obey more of the bloc’s rules.
Big companies are sounding the alarm bell, with plane making giant Airbus this week threatening to pull out of the country, where it employs 14,000, if it gets no clarity on future trade deals.
“Thousands of skilled, well-paid jobs are now on the line because of the shambolic mess the government have created over the Brexit negotiations,” said Darren Jones, the lawmaker for the community where Airbus has its plant.
Before the referendum of June 2016, the British economy had been one of the fastest-growing industrial economies for years. Now, it’s barely growing. In the first quarter of this year it expanded by just 0.1 percent from the previous three-month period, its slowest rate in about five years.
For most people, the first and most noticeable impact was the drop in the pound. The currency slid 15 percent after the vote in June 2016 to a post-1985 low of $1.21. That boosted prices by making imports and energy more expensive for consumers and companies — the rate of inflation hit a high of 3 percent late last year.
The weaker pound helped some companies: exporters and multinationals that do not sell mainly in the UK But it hurt consumer spending and businesses that depend on their shopping. The retail industry was hit hard, with high-profile companies like Toys R Us and Maplin going bust, and supermarket chain Marks and Spencer planning deep cuts.
While prices rose, wages lagged, even though unemployment is at its lowest since 1975, at 4.2 percent.
“After Brexit, prices definitely went up,” said Nagesh Balusu, manager of the Salt Whisky Bar and Dining Room in London. “We struggled a bit earlier this year, so now we’ve increased the prices.” The bar is next to Hyde Park, a popular destination for foreign visitors. “The tourists have a good exchange rate. They know they can spend a little bit more than they usually do. But the locals are coming a little less. They are starting to think about how much they spend.”
The governor of the Bank of England, Mark Carney, estimated recently that average household incomes are around 900 pounds lower than the bank was forecasting on the eve of the referendum.
The real estate market, meanwhile, has cooled considerably, with the number of property sales in London near a historic low last year, according to estate agent Foxtons.
While some foreign prospective buyers were attracted by the drop in the pound, others seem to have been scared off by uncertainty over what Brexit might mean for their investment.
House prices are stagnating after years of gains, also due to expectations that the Bank of England will keep gradually increasing interest rates.
Nic Budden, Foxton’s CEO, predicts that the real estate market will remain challenging this year, while Samuel Tombs, analyst at Pantheon Economics, predicts that house prices will flatline for the next 6 months.
Against the backdrop of uncertainty, businesses have become more reluctant to invest in big projects. Because Brexit could lead to tariffs on EU imports of British goods, companies are hesitant to spend big on British plants and office space before they know what the new rules will be.
Benoit Rochet, the deputy chief of the port of Calais, the French town across the Channel from Britain, complained to a parliamentary committee this month that “we know there is Brexit but we don’t know exactly what Brexit means.”
“You are not alone,” responded the Conservative chair of the committee, Nicky Morgan.