Though lower than expected GDP growth in 2008-09 could take a toll on the Centre?s fiscal and revenue deficit in percentage terms, the finance ministry is confident that the absolute deficit numbers would be in line with its revised budget estimates (RE) for the year. Nevertheless, with the Centre already breaching the deficit targets stipulated under the Fiscal Responsibility and Budget Management (FRBM) Act, the finance ministry is seeking to ask the new government to amend it.

In light of the changed economic scenario, there is a need to abandon the original annual goalposts laid down by the 2004 law and adopt only a medium-term outlook, the ministry feels. As per the FRBM Act targets, revenue deficit was to be wiped out by 2009 through an annual reduction of 0.5% of GDP. Likewise, fiscal deficit was to be brought down to 3% of GDP by 2009 by paring it 0.3% of GDP every year.

Though former finance minister P Chidambaram had suspended the FRBM?s revenue deficit target for 2008-09 by a year, the huge spending on the farm loan waiver, sixth pay commission, oil bonds and three stimulus packages during the year threw both revenue and fiscal deficit targets completely out of whack.

To ensure that Parliamentary propriety is maintained, the North Block is proposing to amend the FRBM Act. ?We are thinking on these lines but a final decision will rest with the new government,? a finance ministry official told FE.

?While the final figures are yet to come in, the trends indicate that the fiscal and revenue deficit will not overshoot the revised estimate in absolute terms. The impact of the two stimulus packages had already been taken into account when the revised estimates were prepared. The third stimulus package will have a marginal affect on the deficit,? he said.

?But with GDP growth expected to be lower than projected, the fiscal and revenue deficits as a percentage of the GDP could be higher than estimated,? the official admitted.

Centre?s fiscal deficit is targeted at 6% of the GDP or Rs 3,26,515 crore while the revenue deficit is projected at Rs 2,41,273 crore or 4.4% of the GDP.

However, with the global economy in a downturn, India?s economic growth is expected to be lower than the earlier estimate of 7%.

Till February 2009, the Centre?s fiscal deficit amounted to 94.1% of the RE at Rs 3,07,133 crore, while the revenue deficit stood at Rs 2,44,513 crore or 101.3% of the RE. In the interim Budget for 2009-10, finance minister Pranab Mukherjee had conceded that the Centre?s fiscal and revenue deficit would be completely off course for 2008-09.

?We expect the economy to grow at a level between 6.5% and 7%. The fiscal deficit will not rise over the existing estimate as the impact of the stimulus measures were accounted for in the interim Budget presented in February,? said Suresh Tendulkar, chairman of the PM?s Economic Advisory Council, who agrees with the MoF?s take on the need to change the FRBM Act. (The Council members will meet on Tuesday to consider tendering their resignations.)

The new government, however, will have to wait for the Thirteenth Finance Commission?s recommendations on medium-term fiscal adjustments, before preparing the amendments to the FRBM Act. ?The Thirteenth Finance Commission has already been asked to prepare a new roadmap for the fiscal deficit,? said Tendulkar.

The Centre had amended the terms of reference of the Vijay Kelkar-led Thirteenth Finance Commission in August 2008, to include a review of ?the roadmap for fiscal adjustments? and suggest a ?suitably revised roadmap to maintain the gains of fiscal consolidation through 2010 to 2015.? The Commission has been asked to bring the Centre?s off-budget liabilities on account of oil, food and fertilizer bonds onto its balance-sheet and and study the impact of various other obligations on deficit targets.

The Commission is expected to finalise its recommendations by October 2009, and the new government could easily table amendments to the FRBM Act in the winter session of Parliament.