Finmin: 3% deficit only by FY15

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New Delhi: Setting a new timeline for consolidation, the finance ministry has projected that it would be able to wipe out the revenue deficit and rein in the fiscal deficit at 3% of GDP only by 2014-15. The estimates bank significantly on the economy staging a smart recovery next financial year and handsome gains from non-tax receipts such as disinvestment and auction of natural resources such as telecom spectrum.

According to government officials, the projections may form part of new fiscal reforms legislation for which the Vijay Kelkar-chaired 13th Finance Commission will provide inputs. The new targets will be concomitant with the award of the commission that is likely to submit its report before December end this year. The award will be applicable for five years beginning 2010-11.

The officials said there was no clear strategy for any meaningful pruning of subsidies that form part of non-Plan expenditure, which anyway is sticky. The other two meaty components of non-Plan expenditure are interest outgo and defence spend. Besides, the finance ministry expects petroleum products and fertiliser products to remain soft, to suggest the subsidy regime would continue.

The global economic crisis and the consequent powering down of the Indian economy had forced the government to announce a series of stimulus measures. These amounted to around Rs 1.86 lakh crore, or roughly 3.5% of GDP. This resulted in the fiscal deficit shooting up to 6.8%, as estimated in Budget 2009-10.

The Fiscal Responsibility & Budget Management (FRBM) Act of 2004 had specified that the government would cut the fiscal and revenue deficits every year by 0.3% and 0.5% of GDP, respectively, so that they reached the targeted level of 3% and 0% by 2008-09.

However, with growth becoming an overriding concern in 2008-09, the government could not stick to the targets. In 2008-09, the actual fiscal deficit was 6.2% of GDP, against the Budget estimate of 2.5%.

The officials also said the finance ministry was bullish on growth prospects over the next five years. Finance minister Pranab Mukherjee has already said he expected the economy to bounce back to 9% levels by 2011-12. This will automatically perk up revenues, which could grow 24-25% a year as it did from 2005-06 to 2007-08 when the economy grew by an average 9% a year.