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Fiscal deficit shrinks to 4.9% on spending cuts, higher tax revenues
June, 01st 2013

Amidst the gloom of a second successive quarter of below five per cent growth numbers, came a ray of hope — the fiscal deficit for 2012-13 at 4.9 per cent of GDP.

This is seen as a remarkable achievement, since even the revised estimates for 2012-13 had pegged the fiscal deficit at 5.2 per cent of GDP. This may give the Government some elbow room on subsidies and the RBI scope for lowering interest rates.

The final numbers for the deficit released on Friday came on the back of spending cuts and higher tax revenues, and placed the budget estimate of a deficit of 4.8 per cent of GDP, for the ongoing financial year, in a more realistic light.


However, Union Finance Minister P. Chidambaram said the surprise numbers put additional pressure on the government to deliver on deficit reduction. This was because the numbers were helped by the inability of many arms of the government to actually spend the budgeted amount, and not because of planned spending cuts. “This year, we have done better than the revised estimates because many ministries were unable to spend even the amount given to them in the revised estimate. Then, there was some additional non-tax revenue of about Rs 7,000 crore. So, we have done 4.9 per cent, but that puts pressure on us for FY14 (2013-14) to do much better than 4.8 per cent,” Chidambaram told reporters. The Finance Ministry feels that the target of deficit at 4.8 per cent will be possible, if revenues go up sharply over the estimate, or expenditure is less. But with elections looming, spending is unlikely to be cut. “I don’t wish to compress expenditure this year; therefore, revenues have to go up,” Chidambaram confirmed.

The Government aims to collect Rs 6.68 lakh crore as direct taxes (income tax, corporate tax, securities transaction tax and gift tax) and Rs 5.65 lakh crore as indirect taxes (customs duty, excise duty and service tax). Both these will need a growth rate of over 19 per cent, against a growth rate of over 13 per cent for direct taxes and over 20 per cent in indirect taxes in 2012-13.

Commenting on the latest development on fiscal front and ways ahead, Aditi Nayar, Senior Economist with ICRA, said, “While the fiscal deficit target for 2013-14 of 4.8 per cent of GDP has been adhered to in the Budget Estimates, the underlying assumption of a 13.4 per cent economic growth in nominal terms, sharp pick-up in revenues from telecom and containing the total subsidy bill at Rs 2.3 lakh crore may be tested over the course of the year.”

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