The World Bank on Friday projected a dismal picture on twin deficits for the Indian economy. It projected fiscal deficit to exceed Budget estimates by 1 per cent of Gross Domestic Product (GDP), and current account deficit (CAD) to 3 per cent of GDP this fiscal, against 2.6 per cent last fiscal.
last year, the budget pegged the fiscal deficit at 4.6 per cent of GDP. The number was around 4.9 per cent of GDP (advance estimates) till January.
In its latest India Economic Update, the World Bank cautioned that India is less insulated against a global crisis, due to less room for fiscal stimulus now. Deterioration of the global economy would lead to a collapse of India’s exports, as demand ebbs, and curtail private sector spending.
“However, fiscal stimulus could come from rationalising government expenditure by expanding investment and cutting subsidies. Investments in infrastructure could alleviate supply bottlenecks and crowd in private investment, with social safety nets cushioning the impact of rising prices,” it said.
There is a strong case for rationalising public spending, lowering borrowing, and supporting private investment through lower interest rates and structural reforms.
The World Bank expects the economy to grow by 7-7.5 per cent this fiscal, against the Central Statistics Office’s 6.9 per cent in advance estimates.
More From This Section
Revenue suffered due to excise duty cut in petroleum and crude oil products, said World Bank.
It said that the Budget for 2011-12 had set an ambitious target for fiscal consolidation.
Slowdown in investment, capital outflows, and decline in the stock market witnessed in 2011 points to deeper structural problems.
The revenue expectations were on the high side without tax policy measures, the report said. Despite higher inflation, the tax refunds and moderation in economic growth in the first half of 2011-12 has made fiscal consolidation challenging. “In fact, tax revenue as a ratio to GDP may fall short of the modest improvement seen in 2010-11 and come closer to the 7 per cent in the post-crisis year of 2009-10, while the expenditure ratio will show little improvement,” the report said.
The World Bank’s projections for CAD — 3 per cent of GDP — are not as worrisome as the Prime Minister’s Economic Advisory Council’s projections of of 3.6 per cent.
The bank said trade deficit could reach $160 billion in 2011-12, against $97 billion in 2010-11.
Commerce Ministry on Friday revised 2011-12 trade deficit (export-import gap) estimates to $175-180 billion.