India to rein in fiscal deficit at 4.6% of GDP

India’s fiscal deficit for current financial year will be contained at 4.6% of GDP, the country’s finance minister said in his 2014-15 interim budget presentation to the Parliament.Finance Minister P Chidambaram said, “Fiscal deficit for 2013-14 will be contained at 4.6% of GDP, well below the red line that I had drawn last year.” India’ fiscal deficit, gap between expenditure and revenue, was 4.9% of GDP in the previous financial year. Economic growth had slowed to a decade’s low of 4.5% in 2012-13.Chidambaram cut federal government spending, particularly on infrastructure. He has transferred substantial control over spending on federally-sponsored schemes such as employment guarantee to the states which will have $54.735 Billion (Rs 3.4 Trillion) in the coming year.This would leave the next federal government with far less money to spend. General elections are due in May this year.Analysts says this move is to please regional political parties. The move will also leave little power for the next government’s federal ministers in key social sector ministries such as rural development, health and human resources development.The current United Progressive Alliance (UPA) government, led by Indian National Congress Party, denied this move is deliberate and said it is routine.However, critics say there is a reason for shifting federal spending power to the states. If Bharatiya Janata Party (BJP), spearheaded by controversial Narendra Modi, forms the next government with its allies, he will find himself left with only a fraction of the money the UPA had access to all these years.Chidambaram today said the cut in total expenditure during the current financial year will not have much impact on growth.“With an expenditure size of US $256.056 Billion (Rs 15.9 Trillion) for 2013-14, I don’t think $12.075 Billion (Rs 750 Billion) cut will impact so much on growth as some people feared,” he said at a post-budget press conference.The finance minister also cut excise duty on small cars, motorcycles and scooters from 12% to 8%. A bigger cut came for larger SUVs where duty was slashed from 30% to 24%. Large cars, which attracted excise of 27%, will now have 24% levied on them while the duty on mid-sized cars came down to 20% from 24%.This decision brings relief to Indian automobile industry whose sales volumes in January fell around 5% compared to the same month in 2013.Major automakers General Motors India, Tata Motors, Toyota, Nissan, Audi and Mercedes-Benz have announced price cuts of their products.Companies are expected to announce new prices on Tuesday morning, and the reduction will also be applicable to the stock in transit or that with the dealers, officials said.