Fiscal deficit may widen as government plans extra spend

In the first seven months of 2011-12, the Centre’s fiscal deficit has already touched 74.4 per cent of what was estimated for the entire financial year. But, policy makers talked of corrective steps to adhere to fiscal prudence, while economists did not rule out worsening of the situation in months to come.

With the government planning to spend Rs 56,850 crore extra through second supplementary demand, fiscal deficit numbers may aggravate.

In this situation, fiscal deficit target at 4.6 per cent of the GDP for 2011-12 seems unlikely to be met. However, Finance Minister Pranab Mukherjee said, “We are monitoring our resource mobilisation efforts as well as our expenditure”.

 

He said the government would not hesitate to take the required correctives to remain on the path of fiscal prudence so that the short to medium-term growth prospects are not undermined.

Chief Economic Advisor Kaushik Basu did not rule out “small slippages”. He said, “4.6 per cent (fiscal deficit as percentage of GDP) is the target. We are very keen on it, but a small slippage on that is a possibility.” Anis Chakravarty, director, Deloitte, Haskins & Sells, on the other hand, zapped any possibility of reining in fiscal deficit to 4.6 per cent or even 5.5 per cent of GDP.

“Seeing no disinvestment possibility teamed with increasing government expenditure, we would be lucky if the fiscal deficit in the second half holds on to 6.7 per cent of the GDP”, he said.

Slow economic growth may also mean less tax collections which widens fiscal deficit.

The difference in the expenditure and receipts of the Centre till October was nearly double the figure in the corresponding period of last year.

The fiscal deficit for 2011-12 till October stood at Rs 3.07 lakh crore versus Rs 1.62 lakh crore.

Economists pointed out that as GDP growth is falling, fiscal deficit may also widen due to low tax collections. They asserted that fiscal deficit for the entire fiscal would be between 5 and 5.5 per cent of the GDP.

The tax revenue reached 43.9 per cent of the budget estimate, at 2.91 lakh crore against 50.9 per cent of the Budget estimate last year.

Non-tax revenue, on the other hand, touched 54.4 per cent of the Budget estimate till the first seven months of the fiscal year 2011-12 at Rs 68,211 crore against non-tax revenue collection of Rs 1.75 lakh crore in the same period last fiscal, which was 118 per cent of the budget estimate. Last fiscal, the government got huge proceeds from the sale of spectrum for 3G services and wireless broadband access.

Expenditure, on the other hand, seemed to be keeping pace with the target. Where Plan expenditure touched just 45.6 per cent of the budget estimate till October, non plan expenditure on the other hand reached 58.7 per cent of the budget estimate.

Plan expenditure till October reached Rs 2.01 lakh crore and non- plan expenditure stood at Rs 4.71 lakh crore in the first seven months of the fiscal.