The Union governments decision to borrow additional Rs 53,000 crore from the market last month has raised doubts over it achieving the budget target to rein in fiscal deficit at 4.6 per cent of GDP during 2011-12. The fiscal deficit numbers for the first half of the current financial year buttressed those apprehensions.
As much as 70 per cent of the budget estimate of the fiscal deficit was already achieved in the first half of the fiscal year 2011-12. The difference in the Centres expenditure and receipts till September this year was more than double compared to the corresponding period last year. However, the pace of growth in fiscal deficit slowed in September compared to August.
It grew nearly four percentage points of the budget estimate from August to September. The fiscal deficit had leaped from 39.4 per cent in June to 55.4 per cent in July to 66. 3 per cent in August of the total budget estimate.
Fiscal deficit stood at Rs 2.92 lakh crore till September this fiscal versus Rs 1.33 lakh crore in the same period last year.
Economists said fiscal deficit target of 4.6 per cent of GDP for this fiscal deficit is out of question. RBI Governor D Subbarao had raised concern at the policy meet last week, that in case the fiscal deficit target slips from the budgeted level, it will have implications on domestic inflation. RBI is struggling to control stubborn inflation, and has hiked rates 13 times in 19 months, but fiscal policy does not complement the central banks efforts.
As even the Finance Ministry does not believe that original GDP growth estimates of nine per cent would be met this fiscal, fiscal deficit might take a hit as tax revenue collection will also fall. However, it would also mean lower nominal GDP, which would work in favour of the government target. The net effect is yet to be seen.
Most economists said fiscal deficit will not be lower than 5-5.5 per cent of GDP this fiscal.
Even for that, Government will have to take hard decisions in the form of curbing expenditure, they said. Non-tax revenue for the first half of the financial year 2011-12 is just one-third of what was achieved last year.
Non tax revenue collection stood at Rs 50,797 crore this year versus Rs 1.69 lakh crore in 2010-11 corresponding period due to huge proceeds from the sale of spectrum for high speed telephony and broadband services.
However, tax revenue collection this year was slightly higher than last year, as it stood at Rs 2.43 lakh crore compared to Rs 2.33 lakh crore last year.
However, in terms of budget targets for the whole fiscal, it was just 36.6 per cent this time around, against 43.7 per cent in the first six months of last fiscal.
Similarly plan and non-plan expenditure were higher than last year in absolute terms. Where plan expenditure till September this year stood at Rs 1.77 lakh crore, last year the number was Rs 1.69 lakh crore. Similarly non-plan expenditure this year in the first half was Rs 4.21 lakh crore compared to Rs 3.68 lakh crore. However, in terms of percentage of budget targets total expenditure was just 47.6 per cent against 48.5 per cent till September last fiscal.