Fiscal deficit target slashed to 4.8%

Written by fe Bureau | New Delhi | Updated: Feb 27 2011, 04:36am hrs
The Economic Survey has projected the countrys fiscal deficit at a lower-than-expected level at 4.8% in the current fiscal, much below the 5.5% budget estimate. But the Survey also stressed that India needs to rapidly lower its fiscal deficit in order to accelerate financial inclusion and to deepen capital markets.

While acknowledging the government's intent to move towards fiscal consolidation in the current fiscal, the Survey said that the prospects of extending this process to the medium term and beyond are bright.

It pointed out the need to carry out expenditure reform by reducing waste in government subsidy programmes.

With continuance of high growth in corporate income tax and a higher than budgeted outcome in personal income tax in the current year, the prospects of revenue-led medium-term consolidation appears bright, the Survey said.

Kaushik Basu, chief economic adviser in the finance ministry, said the 4.8% fiscal deficit number is a mechanical calculation based on the growth and deficit numbers available so far. Besides higher revenues, controlling and improving government spending has been highlighted as the mainstay of fiscal consolidation.

The subsidies should reach the people directly. You cannot do it with a leaking bucket, Basu said.

Financial inclusion needs to be accelerated as a next crucial step and similar efforts are needed to deepen domestic capital markets and the role of non-bank institutions, especially in corporate bond and debt markets. The rapid lowering of fiscal deficits is needed to help crowd-in such developments, said the Survey.

The Economic Survey is encouraging, but any aggressive move to reduce fiscal deficit will impact growth and employment generation, said Ficci secretary general Amit Mitra.

The countrys fiscal deficit, which is excess of expenditure over revenues, ballooned to 6.3% of the gross domestic product in 2009-10.

Among the emerging economies, India had one of the largest fiscal expansions of the order of about 10% of the GDP in both 2009 and 2010, the Survey pointed out. Interest payments on government borrowings is a concern area, the Survey said, but lower fiscal deficit in future would help in controlling interest outlay.