Finmin pegs fiscal deficit at 5.5-5.8% for FY12

This would be the 2nd time in eight years that fiscal deficit would cross BE.

The finance ministry now expects the Centre’s fiscal deficit to reach around 5.5 per cent to 5.8 per cent of the GDP this financial year, against a budget estimate of 4.6 per cent. The April-November period of 2011 saw the fiscal deficit reaching 85.6 per cent of the full year budget target, against 48.9 per cent last year, as the gap between its expenditure and receipts widened.

This would be the second time in the eight years that fiscal deficit would cross the budget estimates — after global financial crisis led to higher figures in 2008-09.

Finance ministry officials with whom Business Standard spoke pegged the fiscal deficit in the range of 5.5-5.8 per cent for 2011-12, depending upon tax and non-tax revenue receipts in the last quarter. This is about one percentage point higher than 4.7 per cent achieved in the last financial year.

Even if the government manage to keep it around 5.5 per cent it would “not be bad”, according to a finance ministry official. This is “considering that this has been a very difficult year, compared to 2010-11, when the government got over Rs 1,00,000 crore from the sale of telecom and broadband wireless spectrum and tax revenue exceeded estimates”.

The data released by the Controller General of Accounts (CGA) on Friday showed that fiscal deficit touched Rs 3,53,000 crore in the first eight months of this financial year, while the budget estimate for the full year was Rs 4,12,817 crore. The first half of the year (April-September) saw the fiscal deficit having already reached 6.7 per cent of the GDP.

Many economists have pegged it even higher — at 6 per cent. In 2008-09 and 2009-10, the fiscal deficit was at 6 per cent and 6.4 per cent respectively, as the government spent money to stimulate the economy feeling the heat of a global financial meltdown. Those two years were marked by a conscious decision to spend more, but now the government wants to go back on the fiscal consolidation path. A high subsidy bill and shortfall in disinvestment and tax receipts in the wake of a slowing economy have disturbed the government’s math.

On Friday, it also announced additional market borrowings of Rs 40,000 crore to meet its expenditure needs. Initially, the government had budgeted Rs 4.17 lakh crore of borrowing in 2011-12. In September, the government said it would borrow Rs 52,800 crore more to meet its expenditure requirements in the second half of the year. This was due to a lower cash balance and a dip in collections from small savings schemes.

Tax receipts in the first eight months of the year are only about 52 per cent of the budget estimate. Proceeds from disinvestment are only at Rs 1,144 crore against Rs 40,000 crore projected in the budget. On the expenditure side, the government’s subsidy bill on petroleum, food and fertiliser is likely to go up by Rs 1 lakh-crore over the earmarked amount of Rs 1.34 lakh-crore.

After the economy clocked a growth of 8.5 per cent in 2010-11, the GDP expansion slowed down to 6.9 per cent in July-September quarter this year.

Along with 7.7 per cent growth in the first quarter, this delivered 7.3 per cent growth in the first half of this fiscal. Factory output, measured by the Index of Industrial Production, dipped 5.1 per cent in October.