Stimulus pinch set to increase fiscal risk | business | Hindustan Times
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Stimulus pinch set to increase fiscal risk

business Updated: Feb 24, 2009 21:04 IST
HT Correspondent

The latest cut in indirect taxes announced on Tuesday is expected to result in an annual revenue loss of Rs 30,000 crore to the Centre, adding to burgeoning deficit in the government’s budget.

But the silver lining is that at a projected GDP growth of 7 per cent, India would still rate among the hottest growth economies in 2009-10, perhaps next only to China, despite a ravaging global slowdown.

Sops such as excise duty cuts and increased development spending to boost growth are set to push up the central government’s fiscal deficit to a worrisome 6 percent of the GDP. Add to that off-budget expenses like oil and fertiliser subsidies, the government could be left with a gaping hole of over 10 per cent.

“I had indicated that we may have to review the ceiling of fiscal deficit that the States can incur in 2009-10 in terms of the debt consolidation and relief facility. As a part of the first stimulus package, it was increased by 0.5 per cent to 3.5 per cent of the Gross State Domestic Product (GSDP) for 2008-09,” Finance Minister Pranab Mukherjee told parliament.

The fiscal risk could increase in 2009/10 as spending could go up.

“To spur the development of infrastructure and employment generation, this arrangement is being extended to 2009-10 with the possibility of further review, if required, in the coming months,” Mukherji said.

The country’s macroeconomic managers would have to thrash out ways and means to raise more borrowings in the next fiscal year as most expect the new government taking charge after elections to unveil a fresh set of measures to stimulate a decelerating economy.

The government, on current reckoning, will raise Rs 3,08,647 crore in 2009/10 by way of market borrowings, which is 17 per cent higher than the current fiscal year.