Centre committed to meeting FY23 fiscal deficit target: Official

Says macroeconomic fundamentals and forex reserves are robust enough to deal with current geo-political challenges

India’s macroeconomic fundamentals and foreign exchange reserves are robust enough to deal with the current geo-political challenges, and the centre is committed to meeting the FY23 fiscal deficit target of 6.4 percent of gross domestic product, a top government official said on Monday.

“The government is committed to the fiscal consolidation path and we will make all efforts to meet the current year’s budget target of 6.4 per cent of GDP,” the official, who spoke off the record, told reporters.

The official said that the government is taking steps to deal with the high crude oil prices caused by Russia’s invasion of Ukraine.

India is 85 per cent dependent on imports to meet its crude oil needs and a weaker rupee makes imports costlier.

Oil prices reversed losses and edged up on Monday as concerns of tight supply amid lower OPEC output, unrest in Libya and sanctions on Russia outweighed fears of a global recession, as per news agency Reuters. Brent crude futures for September rose 55 cents to $112.18 a barrel, while U.S. West Texas Intermediate (WTI) crude futures for August delivery gained 44 cents, or 0.4%, to $108.87 a barrel, after also falling $1 earlier.

The centre faces a higher-than-budgeted food and fertilizer subsidy burden, and for the latter it could exceed the budget target by more than Rs 1 trillion. The last round of excise duty cuts on petrol and diesel will also lead to revenue foregone of Rs 85,000 crore.

However, policymakers are confident that higher nominal GDP (due to inflation) will also lead to higher tax collections and hence the fiscal deficit target could be met.

While acknowledging that there are strong global headwinds, the official said the country's macroeconomic fundamentals are robust enough to deal with challenges.

“When oil prices are this high, obviously current account deficit will go up. For the past several years, India is bridging the CAD gap. This year, the CAD has been impacted by the global situation. But at the same time, the macroeconomic situation as well the reserves are in far stronger position than ever in the past,” the official said.

“Challenges are there, but we are equally confident that we will come out well when the headwinds have subsided,” he said.

The official also added that there should be no concern on the depreciation of the rupee as it was still performing better than peer currencies.

“When US Fed is increasing policy rates, dollar is appreciating all other currencies. Appreciation vis-à-vis rupee has been among the least. Several other currencies of other countries, have depreciated a lot more,” the official said, and added that there was no particular level of the rupee that the government and the Reserve Bank of India were targeting and the efforts were to smoothen the volatility.

The rupee paired its early losses and settled on a flat note at 78.94 (provisional) against the US dollar on Monday.