Fiscal deficit to remain high in FY10: CMIE

The gross fiscal deficit is expected to remain high in fiscal FY 10, for the second consecutive year, Centre for Monitoring Indian Economy (CMIE) said in its monthly review here.

"We do not expect any significant upward revisions in government revenues in the final budget for FY 10 which will be presented in June 2009. Expenditures may be revised upward, albeit modestly, on account of increase in government's effort to negate adverse impact of global liquidity crisis on the domestic economy," CMIE report said.

In the interim budget for FY 10, gross fiscal deficit is budgeted at Rs 3,32,835 crore. This is estimated at 5.5 per cent of the GDP, marginally lower than the six per cent ratio in FY 09.

The 5.5 per cent of GDP ratio itself is a very high. The ratio is likely to remain higher than the budget estimate in FY 10. This would be because of lower than the 11 per cent growth in nominal GDP during FY 10.

The Finance Minister in the budget speech said that conditions in the year ahead are not likely to be normal and, therefore, the high fiscal deficit is inevitable.

"We will return to Fiscal Responsibility and Budget Management (FRBM) targets once the economy is restored to its recent growth path," he said.

In FY 09, fiscal policy remained expansionary, particularly in the second half of the year.

Transfer of resources from government to households and corporate sector in the form of tax reduction and subsidies are estimated at five per cent of GDP during the year.

Earlier, the deficit had crossed six per cent mark in FY 02. But the impressive growth in tax revenue and GDP brought down gross fiscal deficit (GFD)-GDP ratio in the subsequent years.

In FY 08, the ratio had reached a low of 2.7 per cent of GDP. In FY 09, GFD-GDP ratio was budgeted to come down further to 2.5 per cent.

But the change in economic environment since September 2008 following the global liquidity crisis adversely affected the domestic economy and also the fiscal deficit. The GFD once again is expected to breach the six per cent mark in FY 09, CMIE said.

During April-January 2008-09, gross fiscal deficit was Rs 2,62,815 crore. This was 174 per cent higher than the Rs 95,801 crore GFD during April-January 2007-08.

During FY 09, a large part of additional expenditure and shortfall in the non-debt receipts has been financed through market borrowings.

As a result, gross market borrowings for FY 09 through dated securities is revised upward to Rs 3,06,000 crore in the interim budget for FY 10.