Rupee offers India budget relief as subsidy pressure eases


By Manoj Kumar

NEW DELHI, Dec 6 (Reuters) - A recovery in the rupee isgiving India's Finance Minister P. Chidambaram rare relief inhis battle against a threatened credit rating downgrade to junkstatus by reducing pressure on the government's subsidy bill.

Still, the minister can only meet his fiscal deficit targetof 4.8 percent of GDP by rolling over a substantial amount ofsubsidy spending into next year's budget and by finding bigsavings elsewhere, two senior finance ministry officials said.

But a 10 percent rise in the rupee - which slumped to arecord low late in August - means Chidambaram can at leastreduce the amount of subsidy spending that gets pushed into nextyear's budget to $12 billion from a previous estimate of $15billion, these officials said.

Other budget headaches mean he will have to find about $8billion in savings from budgeted spending plans to meet thedeficit target, they said.

The sources, who have direct knowledge of the budget issuesor have been briefed on them, declined to be identified becausethe revised budget numbers are not yet public.

"Chidambaram wants to put the house in order before the 2014election campaign kicks off and the U.S. Federal Reserve beginscutting its monetary stimulus," said one of the officials.

National elections have to be called by May 2014 andemerging markets are on edge as investors speculate on when theU.S. central bank might reduce its economic stimulus, whichcould prompt capital to shift into U.S. assets.

A finance ministry spokesman declined to comment on thebudget estimates other than saying revised figures are stillbeing worked out.


Chidambaram has said the fiscal deficit target is a linethat will not be crossed as he seeks to fend off the threat fromStandard & Poor's to downgrade India's sovereign credit rating,currently clinging to the bottom rung of investment grade.

The budget is under pressure on a number of fronts; subsidyspending on fuel, food and fertiliser has blown out, economicgrowth has slumped to its weakest level in a decade and aprogramme to sell state assets is in tatters.

The government had initially budgeted spending of about $36billion for subsidies, but that swelled to $52 billion when therupee hit its record low.

Reflecting the economy's weakness, net tax receipts in thefirst seven months of the fiscal year are about 7 percent higherthan the year-earlier period, the slowest pace in four years andwell below the full-year budget target of 19 percent. This couldcreate a budget hole of some $2.4 billion, said the secondofficial.

"We will need savings of up to 50,000 crore ($8.1 billion)if the shortfall in tax receipts is between 10-15,000 crore($2.4 billion)," this official said.

Expected income of $8.8 billion from the sale of governmentstakes in state-run companies looks increasingly out of reach.

The government could announce later on Friday the results ofa sale of a 4 percent stake in power transmission company PowerGrid.

Based on the sales price and oversubscription, the sale willraise around $270 million, which would take the total amountraised so far from state asset sales this fiscal year to about$500 million.

The government still hopes to bring in nearly $3.5 billionmore by selling its remaining stake in Hindustan Zinc Ltd and Bharat Aluminium Co (BALCO) before the end of thefiscal year.

"The disinvestment numbers are there in the budget. But itappears that we are going to miss them by a wide margin, likeevery year," said the second senior official.


In the absence of the share sales, Chidambaram told hiscabinet colleagues on Tuesday that money would have to be raisedby pressing state firms to buy back government shares or toissue a special dividend, said the first senior official citinga description of the meeting by Chidambaram.

Prime Minister Manmohan Singh had called the meeting todiscuss the sale of the government's share in state-run coalproducer Coal India and power equipment manufacturerBHEL.

Chidambaram also hopes to make savings by strictlyimplementing rules on allocating funds to other ministries,which will slow down how quickly they receive the money, thefirst official said.

"We are expecting savings of about 40-50,000 crore ($6.5billion to $8.1 billion), though the numbers still have to befinalised," this official said.

Non-spending of allocated funds could help in achieving thebudget deficit target, the finance ministry's spokesman said.

The revenue position will be clearer by the end of December,by which time Indian companies will have deposited their advancetax payments for the third quarter.

The government expects major savings from ministries likedrinking water and sanitation, rural development, defence,trade, communications, power and planning.

In April to October, the deficit reached about 84 percent ofthe full-year target.

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