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Fiscal deficit to be 4.8%

February 25, 2011 13:25 IST
The Budget estimate for the fiscal deficit for 2011-12 will be 4.8 per cent of gross domestic product. In the Union Budget he will present to Parliament on Monday, Finance Minister Pranab Mukherjee will report that fiscal consolidation is very much on track as prescribed by the Thirteenth Finance Commission.

Higher-than-forecast national income growth, revenue buoyancy and windfall gains from 3G spectrum sales have all helped the finance minister meet the target of 5.5 per cent of GDP in 2010-11.

Indeed, government sources have said that the fiscal deficit for the current year may be lower than what Mukherjee had projected in the Budget.

However, to demonstrate his credibility and not allow the 3G bonanza to be seen as a flash in the pan, the finance minister is expected to show that he proposes to remain on the track of fiscal adjustment as defined by TFC.

This will require the fiscal deficit to go down to 4.8 per cent of GDP in 2011-12 and to 4.2 per cent of GDP in 2012-13.

Informed sources in government also told Business Standard that the current account deficit in 2010-11 would be well below 3.0 per cent of GDP, perhaps between 2.5 and 2.8 per cent, and there was no cause for alarm on that account.

While the Reserve Bank of India had earlier expressed concern about a rising CAD, with forecasts of CAD/GDP placed above 3.0 per cent, latest estimates show a much more manageable level.

At the time he presented the 2010-11 Budget in February 2010, Mukherjee had projected his fiscal deficit target of 5.5 per cent on an estimated GDP (at current, market prices) of Rs. 69,34,700 crore (Rs. 69347 billion).

However, the advance estimates for 2010-11, released early this month, raised the GDP (at current, market prices) to Rs. 78,77,947 crore (Rs. 78,779.47 billion), an increase of over 13 per cent.

This alone, without taking into account the positive impact of revenue buoyancy and the windfall gains from 3G spectrum sales, has effectively reduced the fiscal deficit to 4.84 per cent of GDP.

While the gains from 3G spectrum sales may have been neutralised by higher expenditure to meet the increased subsidy burden and other social sector expenditure, higher tax collections have made the government confident of bringing down the fiscal deficit to below 5.5 per cent of GDP during the current year.

The finance minister's challenge will be on the revenue side, where the TFC-stipulated target for revenue deficit for 2011-12 may be difficult to achieve.

The Commission had fixed a revenue deficit target of 2.3 per cent of GDP, down from 3.2 per cent in 2010-11.

This is because even as there will be revenue buoyancy, the government's expenditure on the revenue account (including wages, pension, subsidies and defence) shows no sign of coming under control.

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