The government’s fiscal deficit is not likely to take a hit despite revenues worth Rs 35,000 crore from the auction of 3G spectrum not materialising this financial year.
Experts expect that the deficit might even be slightly better than the Budget estimate of 6.8 per cent of the gross domestic product (GDP) due to a more-than-expected growth rate. In the next financial year (2010-11), the fiscal deficit is likely to meet the target of 5.5 per cent set by the finance ministry.
Though a clear picture will emerge when Finance Minister Pranab Mukherjee presents his Budget later this week, the revenue gap left by the 3G auction this year would be filled up by disinvestment proceeds. The government is expected to close this financial year with over Rs 32,560-crore disinvestment revenue, though a lot would depend on the mega public offer of NMDC Ltd, the country’s largest iron ore miner.
Besides the disinvestment proceeds, the government’s projected 7.2 per cent growth in the current financial year will increase the base and thereby reduce deficit as a percentage of GDP. With GDP expected to grow 10.6 per cent at market prices in the current year, as against the Budget estimate of 10.05 per cent growth, the fiscal deficit could come down by 0.3 per cent, compared to 6.8 per cent estimated in the Budget.
“The fiscal deficit for the current fiscal projected at 6.8 per cent of GDP will marginally come down as the growth as been much stronger than anticipated. The base of growth is wider so it might be in the range of 6.5-6.8 per cent. Though this has not been because of any fiscal consolidation measures,” said Rupa Rege Nitsure, chief economist, Bank of Baroda.
On the expenditure side, the government’s non-Plan expenditure on account of oil subsidy will see an increase of at least Rs 12,000 crore in the revised estimate. The amount has been promised as direct cash subsidy to the oil marketing companies. Since this subsidy is considered insufficient for even the first three quarters of the financial year, it is likely that the government may end up giving around Rs 8,000 crore more, which could take the additional expenditure on account of oil subsidy to Rs 20,000 crore.
Pronab Sen, the outgoing chief statistician and secretary of the Ministry of Statistics and Programme Implementation, told Business Standard that fairly large savings in allocation for other ministries would be able to take care of the additional expenditure. He cited the example of the defence ministry, which is able to utilise only about 60 per cent of the funds allotted to it. “When the revised estimates are worked out, it is quite likely that ministries would not be able to spend funds allocated for the fourth quarter.”
D K Joshi, principal economist of Crisil, too, is of the view that the government would be able to keep the deficit within 6.8 per cent for the current financial year. “The delay in 3G will have minimal affect on the fiscal deficit target for the current financial year as the industry growth has picked up and will generate the revenues and offset the effect. The trend of the fiscal deficit is definitely going down.”
Nitsure also sees the fourth quarter indirect taxes growing by 13-16 per cent, as stated by the Prime Minister’s Economic Advisory Council, and feels that this would help in containing the fiscal deficit.
The current year’s GDP will also come with a revised base of 2004-05, which gives a statistical advantage and brings the fiscal deficit down to 6.4 per cent. After taking the revised growth numbers, the fiscal deficit as a percentage of GDP would fall to about 6.1 per cent, almost touching the 2008-09 level of 6 per cent.
Sen, however, affirmed that keeping an eye on the next year’s deficit is more important at the moment. Most economists see the deficit coming down by at least one percentage point next year. “In 2010-11, I expect the fiscal deficit to be in the range of 5.5-5.6 per cent on high economic growth, good tax realisation, disinvestment, serious rationalisation of subsidies and the 3G auction,” said Joshi.
