New GDP estimate reduces fiscal deficit leeway

Finance Minister P Chidambaram has lost of the fiscal leeway he’d gained earlier in the financial year, when he’d lowered the central government’s fiscal deficit target. This lever has been impacted adversely by Rs 8,000 crore, due to the new gross domestic product (GDP) numbers issued on Thursday.

In the 2012-13 Budget, the finance ministry had expected the fiscal deficit to be 5.1 per cent of GDP. Then, GDP was projected at Rs 101 lakh crore, a 14 per cent growth over the Rs 89 lakh crore in 2011-12. In absolute terms, the deficit was pegged at Rs 5.13 lakh crore.

Realising this was a difficult target, the ministry revised the year-end target to 5.3 per cent of GDP. This meant the deficit could be stretched to Rs 5.38 lakh crore or by Rs 25,000 crore, compared with the Budget estimates (BE). However, with today’s revision, GDP stands reduced to Rs 100 lakh crore. A fiscal deficit at 5.3 per cent means Rs 5.3 lakh crore of deficit. Even so, the government has an advantage of Rs 17,000 crore compared with BE. With the new numbers, the deficit was 76.1 per cent of the revised target at the end of the first nine months of the financial year. If we take BE as the yardstick, it had touched 78.8 per cent. In fact, a small surplus accrued in December; till November, the deficit at Rs 4,12,926 crore had constituted 80.4 per cent of the Budget estimates and almost 78 per cent of the revised target.

 

It was this December surplus that had caught the eye of Fitch Ratings when it lauded the governent’s recent efforts at fiscal consolidation.