Fiscal deficit to overshoot Interim Budget target of 5.5%

The government's gross fiscal deficit is likely to overshoot the budgeted estimate of 5.5 per cent in FY10 on account of a hike in expenditure and slow pace of increase in tax revenue, an economic think-tank has said.

"In the Interim Budget, the government had pegged the gross fiscal deficit at Rs 3,32,835 crore (Rs 3,328.35 billion). This is estimated at 5.5 per cent of the GDP, lower than the 6.1 per cent in 2008-09," the Centre for Monitoring Indian Economy said in a report on the state of the Indian economy.

"The ratio is expected to remain higher than the budgeted estimate in 2009-10," it said.

The change in the economic environment in 2008-09 and 2009-10 implies an increase in demand from different segments of the economy for a stimulus package.

"Increase in government expenditure and a slow pace of increase in tax revenue will increase the gross fiscal deficit during the year beyond the budgeted estimate of 5.5 per cent," the report said.

The CMIE said that lower tax revenue would be on account of the announcement of cuts in the rates of excise duty and service tax after the Interim Budget.

The global liquidity crisis affected the domestic economy and the fiscal deficit adversely, it said, adding that India's fiscal policy turned expansionary during the second half of 2008-09.

"According to the Advisory Council Report of the prime minister, transfer of resources from the government to households and corporate sector in the form of tax reduction and subsidies are estimated at five per cent of GDP during 2008-09, which is large by any definition," CMIE said.

The GFD figures do not include securities issued to oil and fertiliser companies and Food Corporation of India, the think-tank said, adding that GFD remains understated by off-Budget transactions.

According to CMIE, oil bonds and securities issued to fertiliser companies in 2007-08 accounted for Rs 20,554 crore (Rs 205.54 billion) and Rs 7,500 crore (Rs 75 billion) respectively.

"If we include these, the GFD goes up to Rs 1,64,962 crore (Rs 1,649.62 billion) for 2007-08, which is 3.5 per cent of GDP. In 2008-09, the same ration reaches 7.9 per cent," it said.