The International Monetary Fund (IMF) on Tuesday warned that the combined fiscal deficit of India?s federal and state governments may touch 9.5% of GDP this year from 9% last year and more steps, including a ??sustained subsidy reform??, was needed to narrow the deficit in the medium term target.
While advanced economies especially the highly indebted nations are expected to cut their fiscal deficit sharply to 5.9% in 2012 from 6.6% last year, emerging market economies (EMEs) like India, Russia and South Africa may see their fiscal gap widening slightly to 1.9% from 1.8%, IMF said in its Fiscal Monitor report.
IMF revised its forecast for India?s combined fiscal deficit sharply by 1.2 percentage point to 9.5% for 2012 compared to the earlier estimate of 8.3%.
The Centre?s fiscal deficit during April-August touched Rs 3.38 lakh crore or 65.7% of the budget target as revenues were sluggish while disinvestment of PSUs are yet to take off. The government sprung into action to announce a raft of reform measures to avert a sovereign downgrade. The finance ministry is in the process of formulating a fiscal consolidation plan following the recommendation of a panel headed by Vijay Kelkar.
??Price increases for diesel fuel, as well as new announcements on divestment and limits to certain other fuel subsidies, are significant and will help lower untargeted subsidies, but achieving the downward deficit path laid out in the 2012-13 medium-term budget will require further measures, including sustainable subsidy reform,?? IMF said in its report.
IMF estimates the country?s fiscal gap to shrink to 8.2% in 2013-14.
Globally, IMF said most countries have made significant headway in rolling back fiscal deficits. ??The improvement in fiscal balances is most pronounced in advanced economies followed by emerging market economies and to a lesser extent by low-income countries,?? it said.
The United States, for instance, is expected to lower its deficit to 8.7% this year from 10.1% in 2011 while euro area’s deficit is expected to shrink to 3.3% from 4.1% after some of the troubled nations implement austerity packages linked to financial bailout.