India’s fiscal deficit has crossed the government’s initial estimate of 2.5 per cent of Gross Domestic Product (GDP) in the eight months up to November 2008. As a result, the market borrowing by the Centre also crossed the budget estimate of Rs 1,13,000 crore by nearly Rs 21,000 crore in the same period.
As per the data released by the Controller General of Accounts (CGA), the Union government’s overall deficit is now estimated at Rs 1,76,510 crore (or 3.31 per cent of GDP) till November 2008, as compared to budget estimate of Rs 1,33,287 crore.
However, the deficit is likely to come down because of advance tax paid by companies and individuals during December. The higher comes at a time when both direct and indirect tax collections (excluding services tax) dipped in November this year because of economic slowdown.
“Basically, the budget estimates have been highly depressed with less provisioning for items like fertiliser subsidy, salary revision and loan waiver. That’s the reason for high deficit numbers at this time,” said Govinda Rao, director of National Institute of Public Finance and Policy (NIPFP), an economic research institution.
Revenue deficit, which is the difference between total revenue expenditure and receipts, continue to grow at a faster rate. Its not estimated at Rs 1,41,364 crore at the end of November 2008, representing 256 per cent of initial estimates.
An analysis of expenditure incurred in November reveal that the government spent Rs 85,729 crore with plan component consisting of only Rs 16,392 crore. However, revenue during the month was only Rs 26,289 crore.
Given the global financial crisis impacting the growth of the Indian economy, experts say the focus should not on maintaining fiscal discipline but rather take steps to boost economy through deficit financing.
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“This is not the time to bother about deficit, what we need to create aggregate demand in the economy. We should legitimately suspend FRBMA (Fiscal Responsibility and Budget Management Act) for a year,” said Rao, whose institute specilises in research on fiscal policies.
The FRBMA was enacted to bring fiscal discipline and the plan was to eliminate revenue deficit by current fiscal and also reduce fiscal deficit to 2 per cent of GDP by March 2009.
Arvind Virmani, chief economic adviser to the finance ministry, said earlier that fiscal deficit could breach 5 per cent mark in the current financial year, because of fiscal packages announced by the government.