World Bank doubts India's fiscal deficit computation

While the central government is expected to comfortably improve on its fiscal deficit target of 5.5 per cent of gross domestic product (GDP) during 2010-11 due to higher proceeds from the sale of spectrum as well as higher expected GDP numbers, the World Bank has its own doubts. After all, it depends on how accounting is done to treat fiscal deficit.

In its latest update on Indian economy, the multilateral agency said the central government was likely to overperform on its deficit target under the accounting rules.

“However, licence fees should be counted as a financing item because they arose from the sale of a non-renewable asset much like privatisation revenue,” the World Bank said.

Under this treatment, the central government deficit is likely to reach 6-6.5 per cent of GDP and fiscal consolidation during 2010-11 looks feeble, the update said.

Fiscal deficit was pegged at Rs 3.81 lakh crore this financial year which was earlier estimated at 5.5 per cent of GDP. Till December, fiscal deficit has touched Rs 1.71 lakh crore or 44.9 per cent of budget estimates for the entire financial year.

After advance estimates pegged GDP numbers much higher fiscal deficit, even when reined in to Rs 3.81 lakh crore will automatically become 4.84 per cent of GDP. Nominal GDP at market prices was estimated at Rs 69.35 lakh crore for this fiscal at the time of Budget last year, but advance estimates pegged it at Rs 78.78 lakh crore.

The World Bank projected Indian economy to grow by 8.6 per cent this financial year and nine per cent in the next, the same pegged by the PM’s Economic Advisory Council.

“Looking forward, GDP growth looks set to regain the pre-crisis trend of around 8.5-9 per cent this year and the next,” it said.

Indian economy grew by 8.9 per cent in the first half of this financial year.

Besides, the government got around Rs 70,000 crore more from spectrum sale to 2G and broadband wireless access, compared with Rs 35,000 crore projected in the Budget. This money is being more or less absorbed by the excess expenditure in the two supplementaries.