India could trim spending for first time in 3 years - sources

Workers build a pillar of a bridge on a national highway under construction in Ahmedabad

By Nikunj Ohri and Aftab Ahmed

NEW DELHI (Reuters) - Spending by the Indian government this fiscal year could be less than budgeted for the first time in three years, two sources with direct knowledge of the matter told Reuters, amid a push to meet a fiscal deficit target of 6.4% of gross domestic product.

Total expenditure for the 2022/23 fiscal year that started on April 1 could come in 700 billion rupees to 800 billion rupees ($8.59 billion to $9.82 billion) below the budgeted 39.45 trillion rupees, the sources said, requesting anonymity.

The government is keen to rein in the fiscal deficit as it is well above the historical levels of between 4% and 5%, having shot up to a record of 9.3% during the first year of the COVID-19 pandemic in 2020/21.

Though tax cuts on fuel, aimed at reducing the impact of soaring global energy prices, could reduce revenues by more than 1 trillion rupees, one of the sources said total revenues were still expected to increase by over 1.5 trillion to 2 trillion rupees this year.

The rise in revenues would still not be enough to cover anticipated additional expenses with, for example, the government potentially having to provide additional food and fertiliser subsidies of 1.5 trillion to 1.8 trillion rupees, according to the sources.

Despite those pressures, the government remains intent on achieving its deficit target, according to one of the sources.

"The government is not going to budge from the fiscal deficit target," the source said, noting that an "expenditure rationalisation" would be required.

The sources did not say which sectors were likely to be affected by expenditure cuts as discussions over revised budget estimates were ongoing and a final call would be taken by the end of December.

The finance ministry declined to comment.

Economists at brokerages such as Citi, Kotak and ICRA see a risk to the 6.4% deficit target.

Without any expenditure cuts, Kotak expects a fiscal deficit of 6.6%, while ICRA expects the government to overshoot the deficit target of 16.61 trillion rupees by 1 trillion rupees.

($1 = 81.4450 Indian rupees)

(Reporting by Aftab Ahmed and Nikunj Ohri; Editing by Simon Cameron-Moore)