Fiscal deficit to come down to 3% by 2012: Govt

As part of the medium term strategy, the centre has planned to bring down its fiscal deficit, the difference between government’s total expenditure and receipts, by 3 per cent of Gross Domestic Product (GDP) by March 2012.

The plan is to cut expenditure or increase revenue by Rs 85,000-Rs 90,000 crore in each of the two financial years starting April 2010, said Finance Secretary Ashok Chawla.

This would bring the revenue gap to less than the target set under the ‘Medium Term Fiscal Policy Statement’, which was tabled in Parliament on Monday. The statement projects fiscal deficit to be reduced to 4 per cent of GDP in 2010-11. The deficit is projected at 6.8 per cent of India’s output in current fiscal ending March 2010.

“With improvement in the prevailing conditions, the process of fiscal consolidation is expected to be back on track in the next two years,” the fiscal policy statement.

It hopes that economic revival would increase the tax to GDP ratio to beyond 12 per cent level by 2011-12.

After increasing steadily for four years till March 2008, this ratio is projected to decline to 11.9 per cent in 2009-10. Tax to GDP ratio is estimated at 11.6 per cent in just concluded fiscal 2008-09.

“Even the government itself is uncomfortable with current level of deficit. We would make the fiscal deficit computation transparent and honest,” said Chawla.