India’s fiscal deficit could miss the revised official target and swell to as much as 5.6 per cent of GDP, a top government official told Reuters on Thursday, making it tougher for the government to avoid a credit rating downgrade. The comments were the gloomiest scenario for public finances yet given by the government and follow a failed auction of mobile phone spectrum last week that dashed its income forecasts. Global rating agencies have threatened to downgrade India’s sovereign credit rating to junk if it fails to rein in its deficit, which is ballooning because of higher spending on food, fuel and fertiliser subsidies and poor tax receipts. Just last month, Finance Minister P Chidambaram raised the fiscal deficit target to 5.3 per cent of GDP for the current financial year to end-March 2013 from a previous target of 5.1 per cent. “Looking at the current trends in revenue and expenditure, 5.3 per cent looks tough,” said the official, who has direct knowledge of the government finances. “There could be a shortfall of about 500 billion rupees ($9.1 billion) in revenue receipts,” the official said, explaining that would add 0.5 percentage points to the original 5.1 per cent target. A second official agreed with that assessment. Both officials declined to be identified citing the sensitive nature of the information. In setting the revised 5.3 per cent deficit target, the government was banking heavily on generating billions of dollars from the auction of second-generation (2G) mobile phone licences. But the auction last week yielded just under 25 per cent of the targeted Rs400 billion ($7.2 billion). The government plans to have an auction of still-unsold telecom spectrum before March. But the first official said even with that auction, the government could at best garner only Rs200 billion for the full fiscal year. That could force the government to borrow an additional Rs400 billion from the market, the official said. After the auction last week, Chidamabaram said he was still confident India could hit the 5.3 per cent deficit target. India’s federal bond yields rose on the Reuters report. The benchmark 10-year bond yield rose to as high as 8.23 per cent, up 3 basis points from levels before the news.