Fiscal deficit may rise to 5.8% of GDP in FY12: Citi

Global finance major Citigroup has said the Indian government's fiscal deficit could widen to 5.8% of the GDP in FY12 on account of lower tax mop-up, slippage in its PSU divestment programme and the spiralling under-recoveries of oil companies.

"We expect the deficit to widen to between 5.1-5.8% of the Gross Domestic Product in FY12, depending on the extent of the payout of oil subsidies. This is higher than the budgeted target of 4.6% of GDP," Citi Investment Research & Analysis said in the latest issue of its 'India Macro Flash' report.

Citing the reasons for the expected rise in the fiscal deficit, it said: "Slippages could arise from lower tax revenues, expenditure overshoot, lower divestment proceeds and higher oil under-recoveries."

In its pre-Budget survey, the government had projected the fiscal deficit -- the gap between overall expenditure and receipts -- to fall to 4.6% of the GDP, or Rs 4.12 lakh crore, in the current fiscal, as against 4.7% in FY11.

"This [rise in deficit] could result in additional funding requirements to the tune of Rs 50,000 crore, over-and-above the recently announced extra Rs 53,000 borrowing programme," Citi said.

In signs of a deterioration in the country's financial position, the government's fiscal deficit has risen to Rs 3.07 lakh crore, or 74.4% of the Budget estimate, in the first seven months (April-October) of FY12 amid a decline in non-tax revenue growth.

The Centre's fiscal deficit amounted to 42.6% of the estimate in the same period last year.

Earlier this week, Chief Economic Adviser Kaushik Basu had also said that there is a possibility of a "small slippage" vis-a-vis the fiscal deficit target.

"4.6% [fiscal deficit] is the target. We are very keen on it, but a small slippage on that is a possibility," Basu had said.

The rise in fiscal deficit is mainly on account of lower mobilisation of non-tax revenue in comparison to the same period last year, when the government had raised over Rs 1.08 lakh crore through the auction of 3G and BWA spectrum.

During the first seven months of this fiscal, overall revenue receipts stood at over Rs 3.59 lakh crore, as against the Budget estimate of Rs 7.89 lakh crore for the entire fiscal. This was 45.5% of the estimate, as compared to 65.6% in the corresponding period last fiscal.

At the end of October, non-tax revenue collections amounted to 54.4% of Budget estimates, compared to 119% in the same period a year ago.

The government has so far mobilised just Rs 1,145 crore from its disinvestment programme this fiscal. This is far less than the target of Rs 40,000 crore set for the entire fiscal.

The disinvestment plan of the government has been hit due to uncertainty in the stock market amid a global economic slowdown.

The problem has been compounded by over 15% depreciation in the rupee value against the US dollar during the last few months, which has made imports expensive. The country depends on imports for over 80% of its crude oil needs.