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India's fiscal deficit may increase: Goldman Sachs

business Updated: Feb 20, 2009 13:59 IST

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India's consolidated fiscal deficit may increase to 10.3 per cent of gross domestic product (GDP) this fiscal and 10 per cent the next year, according to an estimate by global investment bank Goldman Sachs.

"We do not think that the deficit will come down substantially over the next few years," Tushar Poddar, economist with Goldman Sachs, said in a statement.

"The increase in the supply of government securities may not be accompanied by a similar increase in demand, especially as the private sector increases credit demand towards the latter half of FY10," Poddar said.

"Therefore, we think that the long end of the yield curve will remain under selling pressure, and risk-free rates may rise," he added.

Minister for External Affairs Pranab Mukherjee, while presenting the interim budget on Feb 16, had pegged the current fiscal's deficit at 6 per cent of GDP, but hoped it would come down to 5.5 per cent in the next financial year.

"We should not be too much obsessed with fiscal deficit," he had said, adding: "Of course, corrective measures have to be taken when the revenues have revived."

Finance Secretary Arun Ramanathan shared the view. "In the backdrop of the current situation, high fiscal deficit is inevitable," he told reporters after Mukherjee's budget speech.