Fiscal sops to stimulate a slowing economy, low tax revenue and an uncertain economic outlook are set to push back the government’s fiscal prudence roadmap by at least a couple of years. The new government is set to face a daunting task on that front.
Add to this, a high government borrowing programme, totalling Rs 2,41,000 crore in the first six months itself. Macroeconomic managers are in a tough bind.
The three stimulus packages announced since December have pushed the fiscal deficit to about 8 per cent of GDP.
The government under the Fiscal Responsibility and Budgetary Management (FRBM) Act, had expected to totally eliminate revenue deficit by 2009/10 and rein in fiscal deficit below 3 per cent.
“With the economy slowing down, the FRBMA has gone off track but the new government would have to once gain focus on fiscal discipline to achieve the targets at the earliest,” a government official said, adding that the task will not be easy. “But the performance of the new government would also be assessed on the basis of how fast it manages to put back the FRBMA targets on track,” he pointed out.
“Whichever party comes to power, it would have to given huge thrust on achieving the FRBMA targets. It cannot afford to throw it in the backburner,” Mahesh Purohit, director at the Foundation for Public Economics and Policy Research, told Hindustan Times.
Tax collections by the government’s own estimate is set to be significantly lower in 2008-09 than the originally budgeted. While actual figures are yet to arrive, gross tax revenue for 2008-09 is estimated to be Rs 6,27,949 crore, which is about Rs 60,000 crore less than what was budgeted a year ago.
The government had earlier estimated to borrow Rs 3,08,647 crore during 2009-10, up from last year’s Rs 2,61,972 crore. This is, however, set to go up with about 75 per cent of the estimated borrowing already planned during the first six months itself.