India’s fiscal deficit, including the Centre and states, would be among the highest in the world and likely to be 10.3 per cent of GDP in the current fiscal and 10 per cent in the next fiscal, financial services firm Goldman Sachs said on Friday.
The deficit would not come down substantially over the next few years due to increase in spending, especially on higher wages and unemployment benefits as well as a large increase in the governments interest burden, it said in a research report.
It further said that the country’s interim budget envisages a large increase in central government spending, both in current and next fiscal, making the central deficit rise to 6 per cent of GDP in 2008-09 and 5.5 per cent in the next fiscal.
The gains from a reduction in commodity prices and therefore in the subsidy bill, will be more than neutralised due to substantially weaker revenues and election-related spending pressures, it added.
The report further said the government stimulus measures came at an right time for the rapidly slowing economy, but the government spending may be permanently increased.
The government’s borrowing program will also rise dramatically to a budget estimate of US $ 65 billion in 2009-10 from US $ 28 billion in 2008-09, and will likely remain at elevated levels, it added.