Its early days still, but if the current trends on both the expenditure and revenue sides continue, the fiscal deficit could lie between 3.9 per cent and 4 per cent in 2014-15, a senior government official said.
Optimism stems from lower crude oil prices and delay in the rollout of the Food Security Act which are likely to together help cut the total expenditure bill of Rs 17.94 lakh crore by about Rs 30,000 crore.
A spurt in economic activities is already translating into higher than estimated tax collections. And the continued bull run is expected to ensure that disinvestment proceeds meet, if not exceed, the target of Rs 58,425 crore.
The last time fiscal deficit was under 4 per cent of GDP was in 2007-08 (2.7 per cent), after which it soared to 6 per cent in the wake of the global financial crisis. Fiscal deficit in 2013-14 was 4.5 per cent of GDP. A lowered fiscal deficit will be a significant achievement for the Centre, which has been trying to convince rating agencies of its commitment to fiscal consolidation. A higher sovereign rating would translate into more investments.
Former finance minister P Chidambaram had estimated a fiscal deficit of 4.1 per cent in the Interim Budget in February. Finance minister Arun Jaitley retained the target in his Budget in July, but described it as daunting. Lower global crude prices could translate into savings of Rs 10,000 crore this fiscal, but only if this trend persists, said the official. Crude was trading at $97.79 a barrel in international markets on Monday, much below the finance ministrys estimate of $110 per barrel, on the basis of which it has allocated Rs 63,426.95 crore as fuel subsidy for 2014-15. Deregulating the price of diesel could bolster the fisc further. Again, while the Budget had pegged food subsidy at Rs 1,15,000 crore for the current fiscal, officials said back of the envelope calculations show the delay in implementing the law could result in savings of about Rs 20,000 crore.
Half the financial year is over, and some states are not keen to implement the National Food Security Act. There will definitely be savings on this account, another official, who is involved in the exercise, said. The finance ministry is also confident that improved market sentiments will translate into success for its big ticket disinvestments in Coal India, ONGC and Steel Authority of India Ltd, scheduled around September 26.
The ministry is also hopeful of healthy tax collections on the back of a modest recovery in the economy. For 2014-15, tax receipts are estimated at Rs 9.77 lakh crore. On the non-tax revenue front, the Reserve Bank of India had transferred a bonanza surplus of Rs 56,000 crore to the government.
There are favourable features, but if the government wants to meet the fiscal deficit target without compressing expenditure, assumptions on GDP growth and tax elasticity will have to be realised, said Pronab Sen, chairman, National Statistical Commission.
The Budget had pegged nominal GDP growth at 13.5 per cent, and estimated a 19 per cent rise in tax collections. Sen pointed out that real GDP growth this fiscal is likely to be between 5.5 per cent and 6 per cent. DK Joshi, chief economist, Crisil, said, The fiscal deficit target is difficult. Achieving it will require movement on disinvestment. Lower oil prices will definitely benefit the deficit.