India's current account deficit blew out to its highest in 18 years in the December quarter as the global crisis choked inflows, but the fall in oil prices since mid-2008 helped check market reaction.
Separate data on Tuesday showed the fiscal deficit for the first 11 months of 2008/09 reached 94 percent of its recently upwardly revised full-year forecast after the government went on a spending spree to stimulate a slowing economy.
"Oil prices have declined since December quarter and going ahead we expect it to ease the pressure on the current account, but certainly the number is more than my expectations," said D.K. Joshi, principal economist at ratings agency Crisil.
The current account deficit widened to $14.64 billion in the December quarter from a revised $4.53 billion a year earlier, and the merchandise trade deficit rose to $36.31 billion from $26.05 billion in the year-ago quarter.
Oil is India's biggest import, and the fall in prices of around $100 a barrel from record highs last year has eased concerns about pressure on the trade accounts.'
Joshi expected the current account would be around 3 percent of GDP in the 2008/09 year that ended on Tuesday.
FISCAL SHORTFALL
The government said its fiscal deficit for April-February was 3.07 trillion rupees ($61 billion), or 94.1 percent of last month's upwardly revised target of 3.27 trillion rupees for 2008/09.
The full-year deficit forecast is equivalent to 6 percent of gross domestic product, sharply up from an initial estimate of 2.5 percent due to spending programmes announced in 2008, and the cost of stimulus packages and slowing revenues as the economy was hit by the global financial crisis.
"Next fiscal year, it will widen more as growth will be lower, expenditure will be higher and revenues will take a beating," Joshi said.
Economic growth is expected to have slowed to about 7 percent in 2008/09, and economists expect it to slow below 6 percent in 2009/10, from rates of 9 percent or more in the previous three years.
The government plans to sell 2.41 trillion rupees of bonds, two-thirds of its annual target, in the first half of 2009/10, raising fears in an already nervous market that funding needs may be bigger than expected.
But some of those fears may be assuaged by a central bank announcement on Tuesday evening that it had only transferred 120 billion rupees of a planned 450 billion rupees of market stabilisation scheme (MSS) bond funds to the government in 2008/09, in view of "its comfortable cash position".
A senior official of Asian Development Bank said India should try to cut the deficit once its economy starts reviving.
"Right now there is limited or no fiscal space for more stimulus," said Bruno Carrasco, a director at ADB's South Asia department.
"India has undertaken timely and decisive stimulus and this will arrest the decline in GDP growth."
The ADB expect the Indian economy to grow 5 percent in the year to March 2010.
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