The decline in nominal gross domestic product growth will create challenges for meeting the current fiscal deficit target of 3.9 percent of GDP, the government said on Friday.
"Slower than anticipated nominal GDP growth will itself raise the deficit target by 0.2 percent of GDP," the finance ministry said in its Mid-year Economic Review tabled in parliament.
"The anticipated shortfall in disinvestment receipts, owing to adverse market conditions for a portfolio that largely comprises commodity stocks, will add to the challenge," it said.
"Government is committed to carry the process of fiscal consolidation to its logical end. Fiscal consolidation has been designed with judicious mix of rationalisation of total expenditure as percentage of GDP and improvement in gross tax revenues as a percentage of GDP," the review added.
The government also said there may be a need to reconsider next year's fiscal deficit target of 3.5 percent as the benign fiscal situation and improving fiscal conditions have boosted growth this fiscal.
"However, GDP growth has been powered only by private consumption and public investment is a concern. The proposed wage hike for government workers may impact plan for next fiscal," the report said.
Finance Minister Arun Jaitley, in his February budget, had extended the target deadline for controlling fiscal deficit to three percent, contending that insistence on a timetable to contain it would harm growth prospects.
The targets have been set at 3.9 percent for 2015-16, 3.5 percent for 2016-17, and 3 percent for 2017-18.
India's fiscal deficit has touched 74 percent of the annual target as on end-October, even as tax revenue is below the half-way mark, as per the latest official estimates of the central government accounts released late last month.
The government also said retail inflation for 2015-16 is expected to be at 6 percent, while lowering its growth forecast for the Indian economy to between 7-7.5 percent.
"Next year we have said a fiscal deficit target of 3.5 percent that took into account the impact of the 7th Pay Commission, One Rank, One Pension, that was very much included in our modelling," Minister of State for Finance Jayant Sinha told reporters on Friday.
"We will absolutely meet our fiscal consolidation roadmap. We have said that the 3.9 percent fiscal deficit target this year is well in hand," he added.
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