Despite the strong performance of the economy in 2010-11, the outlook for 2011-12 is clouded by persistently high inflation and rising external risks. The Budget assumes a GDP growth target of 9 per cent, which is on the optimistic side, as we expect GDP growth to moderate to 8.3 per cent in 2011-12. By lowering the fiscal deficit target to 4.6 per cent in 2011-12, from 5.1 per cent in 2010-11, the Budget reiterates its commitment towards medium-term fiscal consolidation.
We believe the fiscal deficit will settle around 5 per cent of GDP in 2011-12, as we expect lower growth, lower tax buoyancy, and limited one-off gains. There are risks of slippages on subsidy expenditure, on oil and fertilisers, where Budget Estimates are conservative.
Some bold steps towards expenditure reforms were missing, and will have to be initiated through the year to keep a lid on subsidy bill and maintain fiscal space for increased spending on physical and social infrastructure.
D K Joshi,
Principal Economist, Crisil