India is likely to miss the revenue and fiscal deficit targets in the current financial year as the government wants to spend additional money to boost the aggregate demand in the economy which has shown signs of slowing down.
Under the Fiscal Responsibility and Budget Management (FRBM) Act, the central government was expected to eliminate the revenue deficit and limit the fiscal deficit to 3 per cent of the gross domestic product (GDP) by March 2009.
“We may need one more year to achieve the FRBM target of eliminating the revenue deficit and containing the fiscal deficit to below 3 per cent of GDP,” Chidambaram said at the annual Economic Editors’ Conference here today.
Additional spending on account of the farm debt waiver scheme and implementation of the Sixth Pay Commission for central government employees has resulted in extra expenditure this fiscal. In the supplementary demand for grants, the government has projected an additional cash expenditure of Rs 1,05,613 crore, which works out to 1.99 per cent of GDP.
This additional cash expenditure directly adds to both the revenue and fiscal deficits, said National Institute of Public Finance and Policy Director M Govinda Rao in an interview on Friday.
Further, the government also had budgeted an expenditure of Rs 1,31,672 crore or 2.48 per cent of GDP in the current fiscal, which will be matched by receipts or through savings.
Chidambaram said the government has given up Rs 31,000 crore revenue, including reduction in taxes and duties, on account of fiscal measures to fight inflation. Thus, he said, the Centre would have to go for additional borrowings this year to meet higher expenditure.
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Buoyant revenues, especially direct taxes, have helped the government in the last two to three years to keep its fiscal targets under control.
| FISCAL THERMOMETER | |||
| Year | GDP growth rate (%) | Fiscal deficit | Revenue deficit |
| 2003-04 | 8.5 | 4.5 | 3.6 |
| 2004-05 | 7.5 | 4.0 | 2.5 |
| 2005-06 | 9.4 | 4.1 | 2.6 |
| 2006-07 | 9.6 | 3.4 | 1.9 |
| 2007-08 | 9.0 | 2.8 | 1.2 |
| 2008-09* | 7-8 | 2.5 | 1.0 |
| * Government projections | |||
| GOVT ACTIONS | |||
| * Holding discussion with World Bank to double lending to India from $3 billion | |||
| * Open to further fiscal measures including excise duty cut for sectors not doing well | |||
| * Changes in FDI rules referred to a Group of Ministers | |||
| * FM to meet public sector bank chiefs in batches to push lending | |||
Commenting on tax collections, Chidambaram said the direct tax collection target for this fiscal would be met. On the indirect tax front, he expressed hope that the target would be met through better collection from Customs duty and service tax, despite the decline in excise collections.
On the economic outlook, he said, “We may expect a moderation in growth rate in the current year to a level between 7 per cent and 8 per cent.” The Indian economy, which is Asia’s third largest, has grown in excess of 9 per cent for three years up to March 2008.
Chidambaram added that the economy would recover in the second half of fiscal 2009-10 and added: “The impact (referring to global financial crisis affecting capital inflows and exchange rate) would be reversed in nine to twelve months.” Foreign investors have taken out more than $13 billion in the current year alone and the Indian currency has lost more than 20 per cent against the US dollar.