Reserve Bank of India seen cutting rates next week, first time in 9 months

Subbarao

The RBI last cut rates in April 2012 by 50 basis points but warned at the time there would be limited scope for further cuts.

FISCAL HOUSE

For much of last year, the government was in turmoil as a fractious coalition struggled to push through new policies to arrest an economic slide that analysts forecast will leave growth for the full-year to March 2013 at just 5.5 percent, almost half the pace seen before the global financial crisis.

But in September it announced big bang reforms in a package of measures to revive growth, saying it would open up its supermarket sector to foreign chains and allow more foreign investment in airlines and broadcasters.

More recently, it gave oil companies more room to set regulated diesel prices and in a sign of a fresh measure that could be in the pipeline, Finance Minister P. Chidambaram said in TV comments aired on Thursday that India should consider hiking taxes for the "very rich".

The moves are intended to bolster investor sentiment, mend battered government finances and stave off a possible credit rating downgrade to junk status.

India's fiscal deficit touched 4.13 trillion rupees ($77 billion) in April-November, or 80.4 percent of the budgeted target for the full fiscal year through March.

The government expects a budget deficit in the current fiscal year of 5.3 percent of GDP.

Economists had pencilled in a deficit of at least 6 percent of GDP, although they have narrowed that to 5.5 percent or 5.6 percent of GDP following the various government measures in recent months.

The country's current account deficit hit a record high of 5.4 percent of GDP in July- September, although Chidambaram said the country can finance the shortfall without cutting into national reserves.

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