The impact of the economic slump on fiscal numbers has been really devastating any way you look at it. While the pick up in growth-UPA I was fortunate to have successive years of 9% plus growth until the slump in 2008-had helped fiscal managers to reduce the revenue deficit from above 4% of the GDP at the start of the decade to just about 1.1% in 2007-08,. They had also managed to more than halve the fiscal deficit to from above 6% to just 2.7% over the same period.
Now, just one bad year has pushed the revenue deficit up four fold to 4.4% and more than doubled the fiscal deficit to over 6%. The new Budget indicates that the deficit levels will now move up to 4.8% and 6.8% respectively in 2009-10.
If the ratios look bad, the absolute numbers are still scarier. The revenue deficit which had halved over the decade to Rs 52,569 crore by 2007-08 has gone up almost five fold to Rs 241, 273 crore in 2008-09 and is expected to climb up to Rs 282,735 crore in the current year, almost a six fold increase from just two years ago.
And the fiscal deficit, which has remained below Rs 150,000 crore throughout this decade has more than doubled to Rs 326,515 crore in 2008-09 and is now all set to touch Rs 400,966 crore in 2009-10. This has pushed net borrowing up three fold to Rs 397,957 crore, which will surely have a crowding out effect on the private sector in the debt market.
A fourfold increase in revenue deficit and a doubling of fiscal deficit in one single year has no parallels at least since the late 1970s when the steady revenue surpluses of the central government gave way to growing deficits.
The worst case scenario before this was in the early 1980s when the revenue deficit of 0.23% in 1981-82 almost trebled to 0.68% the next year. And the highest increase in fiscal deficit till now has been in the early 1990s when it shot up by 1.6 percentage points to touch 7% in 1993-94.
The reduction in deficit, to the levels achieved earlier in this decade, will require a substantial effort on the expenditure side as the size of government spending in as a proportion of GDP has bloated substantially in recent years.
p.raghavan@expressindia.com