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Fiscal deficit to overshoot target of 5.5 per cent in interim budget

The Government's gross fiscal deficit is likely to overshoot the budgeted estimate of 5.5 per cent in FY10 on account of a hike in expenditure and slow pace of increase in tax revenue, an economic think-tank has said.

business Updated: Jun 18, 2009 13:04 IST

The Government's gross fiscal deficit is likely to overshoot the budgeted estimate of 5.5 per cent in FY10 on account of a hike in expenditure and slow pace of increase in tax revenue, an economic think-tank has said.

"In the interim budget, the Government had pegged the gross fiscal deficit at Rs 3,32,835 crore. This is estimated at 5.5 per cent of the GDP, lower than the 6.1 per cent in 2008-09," the Centre for Monitoring Indian Economy (CMIE) said in a report on the state of the Indian economy.

"The ratio is expected to remain higher than the budgeted estimate in 2009-10," it said.

The change in the economic environment in 2008-09 and 2009-10 implies an increase in demand from different segments of the economy for a stimulus package.

"Increase in government expenditure and a slow pace of increase in tax revenue will increase the gross fiscal deficit during the year beyond the budgeted estimate of 5.5 per cent," the report said.

The CMIE said that lower tax revenue would be on account of the announcement of cuts in the rates of excise duty and service tax after the interim budget.

The global liquidity crisis affected the domestic economy and the fiscal deficit adversely, it said, adding that India's fiscal policy turned expansionary during the second half of 2008-09.