Nomura projects India's fiscal deficit at 5% of GDP in FY11

A strong growth and divestment programme will help the government reduce fiscal deficit to 5 per cent of India's total economic output this fiscal, lower than projected earlier, research firm Nomura said today.

"We are revising our estimate of the central government fiscal deficit to 5.0 per cent of GDP in FY11 (year ending March, 2011) from 6 per cent earlier and below the government estimate of 5.5 per cent of GDP," Nomura said.

"A strong economic rebound and substantial gains from asset sales have reduced the fiscal deficit by much more than we had expected," it added.

Nomura projected India's nominal GDP growth of 16 per cent year-on-year in FY11, much higher than the government's 12.5 per cent.

The government is also looking at raising Rs 40,000 crore through disinvestment this fiscal. It has already raised over Rs 1.06 lakh crore from the sale of spectrum for 3G and Broadband Wireless Services (BWA) services.

The research firm also said that one-off expenses on pay arrears and fiscal stimulus are set to fade.

It said that overall economic growth is expected to raise tax buoyancy as well. "Tax buoyancy (the percentage change in tax revenues divided by the percentage change in GDP) should rise, too; on our estimates, having fallen from 1.5 during 2004-08 to 0.3 in FY10, it is likely to rebound back above 1," Nomura said.

The research firm said that three years after India's fiscal finances began to deteriorate, its fortunes are finally turning around.

It projected that the government is expected to borrow Rs 15,000 crore less in the current fiscal.

"We expect gross market borrowings to be reduced by Rs 15,000 crore in FY11 to Rs 4.4 lakh crore... Further ahead, we expect gross market borrowing of Rs 4.5 lakh crore in FY12," Nomura added.