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Fisc risk up with costlier imports, tax pinch

The government’s ambitious target of bringing down fiscal deficit below 3 per cent by March 2009 is set to go off track. Mahua Venkatesh reports.

business Updated: Oct 24, 2008 20:49 IST
Mahua Venkatesh

The government’s ambitious target of bringing down fiscal deficit below 3 per cent by March 2009 is set to go off track.

The import bill may just get bigger with the depreciation in the value of rupee, which touched an all-time low of Rs 50 to a US dollar on Friday.

Economists said that fiscal deficit could well be between 3.3 and 3.5 per cent for 2008-09 as against the budget target of 2.5 per cent.

Crude oil prices, which dropped to levels of around $61 barrel-levels on Friday, may not ease much because oil producers effected an arresting production cut at Vienna.

The pressure on the exchequer is also increasing due to the deceleration in tax collections during the current financial year as growth slows, analysts say. Finance minister P Chidambaram has already said that the fiscal deficit target may be
missed for 2008-09.

The implementation of the sixth pay commission and the farmers’ debt relief package have also seen a huge outgo of funds for the government.

Under the Fiscal Responsibility and Budget Management Act (FRBMA), the government must reduce fiscal deficit by a minimum of 0.3 per cent of the GDP every year and revenue deficit by 0.5 per cent each year, to bring down the fiscal deficit to below 3 per cent of the GDP by March 31, 2009.

“There are fixed expenses for the government and they have to be carried out. Tax collection has also shown a dip. In this context, fiscal deficit could well be a little above the budgeted estimate but it should not worry (us),” said Mahesh Purohit, director of the Foundation for Public Economics and Policy Research.