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Whether India can meet its deficit targets for fiscal 2013 will depend on the government's decisions on divestments and subsidies, says Fitch's Art Woo.

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02/19/2013 | 11:00am CET


SHOWS: HONG KONG, CHINA (February 19, 2013) (REUTERS - ACCESS ALL)

ART WOO, DIRECTOR OF ASIA SOVEREIGN RATINGS, FITCH RATINGS

1. REPORTER OFF CAMERA SAYING:

'India faces peculiar challenges - on one hand it needs to fix twin deficits and on the other, growth needs to be revived. What are your thoughts?'

2. ART WOO SAYING:

'Yes, it's a difficult dilemma they are in. And these challenges have been around for a while. So the issues of the budget deficit - which is quite wide already, the current account deficit is widening and growth is slowing - is a picture that is not very comfortable from both policymakers' stand point. So I think this is why there has been so much attention, focus on the structural reform process in terms of both economic reforms, in terms of improving their economy's competitiveness, but also in terms of fiscal consolidation in order to bring in the budget deficit.'

3. REPORTER OFF CAMERA SAYING:

'India's FM has been quite confident and adamant that the current year's fiscal deficit will not breech 5.3%. And next year's deficit will be around 4.8%. Do you think this is achievable?'

4. ART WOO SAYING:

'Well all deficits to me are targets, are always achievable. I guess the question comes down to a matter of willpower and the willingness to implement the measures that are needed to meet the target. As for the fiscal year 13 deficit, we are already 9 months into the year in terms of the data that's been released. And so far the data suggests that it's going to be a close call in terms of whether they can meet the target of 5.3% of GDP. Much will depend on divestments - government's sales of assets - and too, in terms of subsidies what they do in terms of the subsidies-sharing mechanism. So we'll have to wait and see. As far as next year, it's a bit too early. Obviously we are waiting for the budget at the end of this month on February 28th to get an idea of the type of measures the government will put in place to meet the target of 4.8%. But obviously a lot will also depend on just the general growth prospect.'

5. REPORTER OFF CAMERA SAYING:

'To attain these targets India needs to cut the subsidy burden substantially. Do you think India has the political will to do that, considering 2014 is election year? Also, India in the past has had patchy performances on policy implementations. Do you see political risks taking over economics?'

6. ART WOO SAYING:

'Yeah, very good questions. And they are both very difficult to answer. Obviously political will is very difficult to assess. I mean if you look at India's recent track record going back to the last general election back in 2009, the budget did widen in advance of general elections. But obviously, it was a difficult time back there in terms of the global financial crisis. And obviously when it comes down to subsidies, reducing those subsidies and their overall structure of the budget, a lot does depend on politics. And India does have a complicated political process in terms of how the government, the ruling UNP, deals with its coalition partners.'

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