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Chidambaram to Come Clean on Fiscal Consolidation Plan

Finance Minister P Chidambaram is preparing to present a fresh plan on fiscal consolidation with 'honesty' and 'credibility' as its cornerstones, hoping to reassure anxious financial markets that the government is committed to getting its financial house in order even though there may be slippages this year. 
Into the third week in his third stint at the finance ministry, Chidambaram has initiated an exercise to closely look at the arithmetic underpinning the government's receipts and expenditure numbers while a panel of experts led by former finance secretary Vijay Kelkar prepares a detailed plan on fiscal consolidation in a few weeks. "The plan will be high on restoring credibility to the government numbers," an official familiar with the deliberations told ET, adding that it would attempt to draw a line under widespread perceptions that these numbers were not anchored in reality earlier. 
The government is racing against time to show progress on the fiscal front, with international rating agencies ready to pounce at the first sign of weakness to downgrade India to junk status from the current lowest investment grade. 
The government's credibility on the fiscal front took a big hit after last year's fiscal deficit number came in at 5.9% of GDP against the budgeted figure of 4.7%. All through the year, the government kept assuring it would meet the deficit targets, despite mounting evidence that it faced an uphill task doing so. For this year too, it has set an ambitious target of reining in fiscal deficit at 5.1% of GDP, although few expect it to meet that number. Honest Assessment Need of the Hour 
Most economists expect the figure to be closer to 6% on GDP growth numbers lower than what the government has forecast. The government is still to revise its forecast of GDP growing more than 7% this year, even though most independent forecasters are increasingly penciling in figures closer to 5.5%. 
Analysts said at this stage, they were looking for an honest assessment rather than miracles. 
"Best is to come clean and say there will be additional borrowing. The market has reconciled to the fact that the deficit number may be overshot," said Abheek Barua, chief economist at HDFC Bank. 
Barua said the financial markets were looking for small steps and a credible long-term plan to rein in the deficit and how the government plans to manage the food security bill. One official involved with government finances said things were looking difficult. "Fiscal numbers may have to be reworked," the official said, adding that rising petroleum subsidies, slow growth in revenue collections and uncertainty about proceeds from spectrum auctions were a concern. 
The government has budgeted . 40,000 crore from the spectrum auctions, but a system of phased payments could mean that it will not get the entire budgeted amount during the fiscal year. State-run oil companies have clocked up underrecoveries of nearly . 48,000 crore in the April-June quarter, even though the government has exhausted its allocation for petroleum subsidies in clearing last year's dues. 
At the end of the first quarter, fiscal deficit was already 37% of the budgeted amount as revenues came in below estimates while expenditure was higher. For the same period in the year-earlier period, the number was 32%. Fitch Ratings has said there is a 50% chance that India's rating will be lowered in the next 12-24 months, joining Standard & Poor's in sounding concerns about the economy. 
S&P has also put the country's rating on watch, with one in three chance of a downgrade to junk status. 
"With S&P and Fitch already revising the outlook from stable to negative, we believe a lack of measures on fiscal consolidation could impact the overall rating, which is currently at the lowest rung of the investment grade (Baa3/BBB-)," Citi economist Rohini Malkani wrote in a recent report.