Fiscal deficit to be reduced to 5.5 % in new fiscal | business | Hindustan Times
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Fiscal deficit to be reduced to 5.5 % in new fiscal

business Updated: Feb 27, 2010 01:45 IST
HT Correspondent

Finance minister Pranab Mukherjee on Friday set out a medium term roadmap to return to fiscal prudence, targetting to reduce to fiscal deficit to 5.5 per cent of gross domestic product (GDP) in 2010-11 and eventually bring it down to 4.1 per cent in the next two years.

The fiscal deficit in 2010-11 works out to Rs 3,81,408 crore. Taking into account the various other financing items for fiscal deficit, the actual net market borrowing of the government in 2010-11 has been pegged at Rs 3,45,010 crore, or lower by about Rs 50,000 crore compared to 2009-10.

“Fiscal policy has to be guided by the required framework for fiscal prudence,” Mukherjee said in his budget speech.

The government and the RBI had announced a series of measures including tax breaks in many products and interest rate cuts to help companies stay afloat with the help of cheaper loans.

The government has cut excise duty and service tax that brought down prices of several goods and services as the companies passed on the benefits of lower taxes to consumers in the form of lower prices. India’s stimulus package has resulted in Rs 42,000 crore of tax revenue foregone for the government in 2009-10, which would translated into a higher deficit of 6.8 per cent of GDP.

“Better than estimated direct tax receipts coupled with impressive growth data from manufacturing sector in recent months provide opportunities to revert back to the path of fiscal consolidation in a gradual manner,” said the fiscal policy strategy statement submitted along with the budget documents. . “Last year, government financing was made easier by weak private demand for credit plus the RBI's large open market bond purchases. This year the RBI needs to withdraw liquidity, but monetary policy may be forced to remain more accommodative than necessary,” said Varma.