With two more months still left in the current financial year, the government has already exceeded its budget estimates for fiscal deficit, indicating that it will breach the target of 4.6% of gross domestic product ( GDP) by a large margin.
At the end of January, the centre had run up a fiscal deficit of Rs4.34 lakh crore or 105% of the budgeted estimates, as slowing growth depressed direct tax collections and the government struggled to meet its non-tax revenue targets because of difficulty with asset sales.
'This is a direct reflection of fiscal stress and the fact that government has ramped up its market borrowings in the previous quarters. ¦we now expect the fiscal deficit to be 5.9% of GDP,' said Indranil Pan, chief economist, Kotak Bank.
Net tax revenue in the first ten months of 2011-12 amounts to only 69% of budgeted estimates and other capital receipts including disinvestments proceeds were only 6.9% of budget estimates.
The proposed stake sale in ONGC, which is expected to net the government nearly Rs12,000 crore, will provide some relief to the cash-strapped government. During the same period in the previous financial year, fiscal deficit was equal to 58.3% of budget estimates and tax revenues 80% of the target. The government has already announced additional market borrowings worth Rs93,000 crore in order to finance its growing fiscal deficit. The budget for 2011-12 had pegged market borrowings at Rs3.58 lakh crore.
The breach will take the fiscal deficit for the year to well above the 4.8% of the GDP set by the 13th finance commission, putting pressure on the government to present a credible fiscal consolidation plan in the upcoming budget. Reserve Bank of India ( RBI) has already raised concerns over the government's expanding fiscal deficit, blaming it for constraining monetary policy and causing inflation. However, economists are skeptical of the government's ability to cut down deficit substantially.
'Consolidation at this stage is very important but the government has little room to cut expenditure given its subsidy regime and social schemes. Also, there are few avenues for raising revenues - so we expect the fiscal deficit could go up to 5.4% in the next fiscal as well,' Mr Pan said.
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At the end of January, the centre had run up a fiscal deficit of Rs4.34 lakh crore or 105% of the budgeted estimates, as slowing growth depressed direct tax collections and the government struggled to meet its non-tax revenue targets because of difficulty with asset sales.
'This is a direct reflection of fiscal stress and the fact that government has ramped up its market borrowings in the previous quarters. ¦we now expect the fiscal deficit to be 5.9% of GDP,' said Indranil Pan, chief economist, Kotak Bank.
Net tax revenue in the first ten months of 2011-12 amounts to only 69% of budgeted estimates and other capital receipts including disinvestments proceeds were only 6.9% of budget estimates.
The proposed stake sale in ONGC, which is expected to net the government nearly Rs12,000 crore, will provide some relief to the cash-strapped government. During the same period in the previous financial year, fiscal deficit was equal to 58.3% of budget estimates and tax revenues 80% of the target. The government has already announced additional market borrowings worth Rs93,000 crore in order to finance its growing fiscal deficit. The budget for 2011-12 had pegged market borrowings at Rs3.58 lakh crore.
The breach will take the fiscal deficit for the year to well above the 4.8% of the GDP set by the 13th finance commission, putting pressure on the government to present a credible fiscal consolidation plan in the upcoming budget. Reserve Bank of India ( RBI) has already raised concerns over the government's expanding fiscal deficit, blaming it for constraining monetary policy and causing inflation. However, economists are skeptical of the government's ability to cut down deficit substantially.
'Consolidation at this stage is very important but the government has little room to cut expenditure given its subsidy regime and social schemes. Also, there are few avenues for raising revenues - so we expect the fiscal deficit could go up to 5.4% in the next fiscal as well,' Mr Pan said.
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