The pressure on government finances has eased considerably after the the windfall from auction of 3G spectrum and a pick up in tax collections.

At the end of the first quarter (April-June), the Centres fiscal deficit was only Rs 40,196 crore or a mere 10.5% of the budget estimate of Rs 3,81,408 crore for the entire year, data released on Friday showed.

In the corresponding period last year, the Centres fiscal deficit was 31% of the full year target, indicating that the government will better its target of 5.5% of the GDP for the entire 2010-11.

My personal belief is that the windfall from 3G auction can bring down the fiscal deficit to 5% of the GDP in 2010-11, said M Govinda Rao, director NIPFP.

The government has also indicated that it will not splurge the extra money and instead cut down on the deficit for the year.

The reduction in fiscal deficit in 2010-11 has been projected on the basis of improvement in tax revenues primarily due to increase in the central value added tax, increase in non-debt capital receipts and reforms in expenditure management, Finance Minister Pranab Mukhejee informed the Parliament in a written statement on Friday.

The government earned Rs 1 lakh crore from the sale of third generation spectrum as against the budgeted Rs 35,000 crore. Direct and indirect tax receipts too have risen sharply, with the first quarter advance tax payments growing at its fastest pace since 2005 at 31.4%.

Tax receipts were Rs 83,994 crore and total expenditure was Rs 2,42,208 crore for the first three months of the current fiscal year. The Prime Ministers Economic Advisory Council has also pegged the Centres fiscal deficit for the current fiscal year to be slightly lower than the governments budgeted 5.5% of GDP because of the gains from the spectrum auction and bouyant tax collections.

But it has warned that the budgeted level of fiscal and revenue deficit is still beyond the comfort zone.