India's Modi eases deficit goal, heeding GDP warning

Mumbai - India eased its deficit targets as Prime Minister Narendra Modi boosts spending to cushion the economy after advisers warned of a steep slowdown triggered by his cash ban.

The budget shortfall will be narrowed to 3.2% of gross domestic product (GDP) in the year starting April 1, Finance Minister Arun Jaitley told lawmakers in New Delhi on Wednesday. While smaller than a deviation to 3.3% predicted by most economists in a Bloomberg survey it’s wider than the government’s previous aim of 3% of GDP.

Any worsening of Asia’s widest deficit can disconcert rating companies, who’ve cited the gap as a constraint for an upgrade. Investors - already net sellers of Indian stocks and bonds this year - will also assess the credibility of revenue forecasts as Modi’s cash clampdown crimps investment and expansion.

Growth in gross domestic product can dip as low as 6.5% in the current fiscal year from a previous forecast of 7.1%, Jaitley’s economic advisers said in a report presented on Tuesday. At this pace - the slowest in four years - India will no longer be the world’s fastest-growing big economy.

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