Govt presses rewind button on FRBM

FISCAL DEFICIT: The fiscal deficit this financial year is expected to touch 6 per cent of GDP, the highest in seven years.

The fiscal deficit this financial year is expected to touch 6 per cent of the country’s gross domestic product (GDP) — the highest in seven years — because of falling tax collections and rising expenditure.

In 2009-10, the deficit, or the amount by which the government’s spending exceeds its revenue and interest payments, is expected to come down by half a percentage point to 5.5 per cent of GDP. The government on Monday revised downward the fiscal deficit estimate for 2007-08 to 2.7 per cent of GDP as against the earlier projection of 3.1 per cent.

The numbers do not reflect about Rs 96,000 crore worth of bonds issued to oil and fertiliser companies. If these are included, the fiscal deficit would increase to 7.8 per cent in the current financial year.

The government later clarified that from 2009-10 there would not be any off-budget items and all subsidies provided by the Centre would be in cash. Further, the government is not budgeting for any subsidy on account of sale of petroleum products in 2009-10.

The revenue deficit is estimated at 4.4 per cent of GDP in 2008-09, against the Budget estimate of 1 per cent. However, the primary deficit, defined as pure deficit as interest payments are taken out of the fiscal deficit to compute it, has moved into positive territory at 1.8 per cent of GDP. It had been in negative terrain for the previous two financial years.

With the government overshooting the target set under the Fiscal Responsibility and Budget Management (FRBM) Act, which stipulates the fiscal deficit to be contained at 3 per cent of GDP, Finance Minister Pranab Mukherjee said, “Conditions in the year ahead are not likely to be normal and, therefore, the high fiscal deficit is inevitable. We will return to FRBM targets once the economy is restored to its recent growth path.”

The Centre is projected to borrow Rs 2,61,972 crore from the market in the current financial year, as compared with the initial projection of Rs 1,00,571 crore. This excludes short-term borrowings of Rs 57,500 crore. This is because the revised estimate of total expenditure is expected to increase by Rs 1,50,000 crore, while the total revenue receipts will fall by Rs 40,762 crore when compared with the Budget estimates of the current financial year.

About the gap of Rs 45,000 crore between the calendar of market borrowing and revised estimates for the current financial year, Economic Affairs Secretary Ashok Chawla said this would not be raised from the market, adding that the ministry was holding talks with the Reserve Bank of India on this issue. In 2009-10, the market borrowing is expected to touch Rs 3,09,000 crore.

States, which are under the fiscal deficit ceiling for using debt consolidation and relief facility set up by the 12th Finance Commission, may also get relief in terms of their fiscal deficit targets. The target was revised upwards by half a percentage point to 3.5 per cent of states’ GDP while announcing the second fiscal stimulus package in January 2009.