KOLKATA: Reserve Bank of India governor Raghuram Rajan said the government may squeeze spending as it aims to reduce fiscal deficit to 4.8%, raising further concerns over the recovery of a slowing economy.Rajan said the 4.8% target for FY14 would likely to be met but this could result in a contraction in spending, depending on the extent of revenue shortfall. He was addressing investors in New York at a Citi event.Foreign lender HSBC said spending would contract by up to 1% of GDP in the second half and would impact GDP growth by up to 0.5-0.7%. HSBC does not expect India to meet the 4.8% target. “We believe the deficit will end up quite close to the target, but slightly higher at 5.1 per cent of the GDP,” it said in a note.The revenue growth was slower than normal in the first half of the fiscal. About 35% of the target was met in the first half as against the normal 40%. Many market participants are expecting the UPA government to enhance it after Congress’ poll debacle in four states which was touted as the bellwether for 2014 Lok Sabha elections.Citi quoted Rajan saying that economy has slowed to below 5% from an average of 8% between 2002-2012, largely on account of domestic factors including structural constraints in areas of infrastructure, education, regulation and financial sector reform. Some 200-odd investors attended and interacted with RBI governor which according to Citi is a renewed investor interest on India.After Rajan became the governor, India has seen the rupee gaining nearly 10% from a record low of 68.80 a dollar and forex reserves have risen by $16.5 billion to $291 billion.The governor reiterated his commitment to the five pillars to improve the financial system. These include clarifying monetary policy framework, strengthening the banking structure through entry of new banks, broadening financial markets , moves towards financial inclusion, and to improve systems to deal with distress faced by financial institutions and corporates.Rajan blamed the financial stimulus for leading to an over-heated economy, high inflation and wage growth and consequently deficits widening to uncomfortable highs. The current account deficit rose from 2.8% in FY11 to 4.8% in FY13 and the fiscal deficit from 2.5% in FY08 to 5.7% in FY12.“This is largely a result of domestic factors (institutional weakness, withdrawal of stimulus) and one-third due to global factors. While the stimulus did help growth initially, it eventually led to an over-heated economy,” Rajan was quoted saying. Interestingly, P Chidambaram too had a few months back blamed his predecessor Pranab Mukherjee for the ill-effect of the stimulus package.