Even as the fiscal deficit has touched 66 per cent of Budget estimates for the entire financial year 2011-12 in just five months, the Union finance ministry on Wednesday asserted this was in line with the average trend of the past five years. It reasserted the target of reining in the deficit at 4.6 per cent of gross domestic product this financial year would be met.
However, many other economists do not believe that target could be met, even if India’s gross domestic product (GDP) expands. Finance ministry officials also admit the target is difficult to achieve, but say they’re sure it can be done.
The fiscal deficit touched Rs 2.74 lakh crore during April-August of the current financial year, constituting 66.3 per cent of the whole year’s target of Rs 4.14 lakh crore. In the corresponding period of 2010-11, it was 39.7 per cent. However, that was also a year when the government got a windfall Rs 100,000 crore from the sale of 3G telecom spectrum. Also, the fiscal deficit was much below the targeted level of 5.5 per cent of GDP.
The officials said the fiscal deficit shows high levels during the first five months of any year and the figures till August for 2011-12 follow that pattern. Given the trend, they expect to exceed the budget target for direct tax collections and also meet the indirect tax mop-up target.
Though there are question marks over the disinvestment target, they said the ministry was working on a number of options. Of the Rs 40,000 crore of targeted proceeds from disinvestment, the government has got just over Rs 1,000 crore, through offloading of shares in Power Finance Corporation. Economic Affairs Secretary R Gopalan had already said options include asking public sector companies to buy back shares. This proposal, however, is at a “conceptual” stage, he had added.
Officials said any rise in the minimum support price for wheat, as sought by the agriculture ministry of as much as 15 per cent to Rs 1,350 a quintal, would not add much to the financial burden of the government, since Food Corporation of India would not want the money immediately. Also, the proposed Food Security Act is to be implemented only in the next financial year.
The Rs 49,000-crore burden due to cut in duties on fuel, besides any increase in the subsidy burden, would be met with an increase in direct tax collections and savings in other heads, they said.
Expenditure, they added, was well within control. For the first five months of 2011-12, the government kept spending down to Rs 4.72 lakh crore, which is 37.5 per cent of the target for all the entire year. In the corresponding period last year, this was 40.4 per cent of the total budgeted spending.
However, many economists do not share such optimism. Said Madan Sabnavis, chief economist, CARE Ratings: “There is a big question mark on the government being able to achieve the 4.6 per cent fiscal deficit target. The government has got an additional burden of Rs 53000-crore borrowings. Even if the denominator, that is the GDP, expands at an elevated level, it still won’t be able to achieve the target of 4.6 per cent.”