Don't be overzealous in meeting target: FM

As the government struggles to rein in fiscal deficit at a targeted level of 4.6 per cent of gross domestic product (GDP) in the current financial year, Finance Minister Pranab Mukherjee on Tuesday cautioned against excessive zeal to somehow achieve the target as it may hurt the economy.

“We have to be careful not to over-do ourselves in reaching this target (to bring down fiscal deficit to 4.6 per cent of GDP in 2011-12) since that can have an excessive slowing down impact on growth,” Mukherjee said in a statement in Parliament.

This is the first real assessment of fiscal deficit situation by the finance minister as till now he was maintaining the target for 2011-12 would be met, analysts said. He said pruning fiscal deficit to 4.6 per cent of GDP was a difficult target, given the deterioration in global economy and its impact on India over the past three to four months.

The government is facing a rough weather in this regard. In the first half of 2011-12, its fiscal deficit had already reached 68 per cent of what was estimated in the Budget for the entire financial year.

On the other hand, the economy is slowing down under the impact of Reserve Bank of India’s (RBI’s) tight monetary moves as well as global slowdown. If it tries to bring down fiscal deficit by cutting expenditure, it might have a further adverse impact on the slowing down economy.

However, it can focus on revenue generation which has also not been keeping pace with the target as disinvestment seems to be in jeopardy and tax collections are bearing the brunt of slowdown.

The fiscal deficit as a percentage of GDP was 6.4 per cent in 2009-10. In 2010-11, this was brought down to 4.7 per cent. This year, the government has set a target of bringing down fiscal deficit to 4.6 per cent.

Analysts expect fiscal deficit to be anywhere in the range of 5-5.5 per cent of GDP this fiscal.