The country’s fiscal deficit, the difference between what the Centre gets from revenues and borrowings and what it spends, has grown considerably in the current fiscal, showing the deep scars of the global economic crisis.
Tax collections are down because of lower corporate profits and customs revenues from oil prices are hit by a global fall in petroleum prices.
As a result, the government has put off its legal promise to keep the deficit low. It has been borrowing beyond limits considered wise and needs to do something to boost tax revenues or cut back on expenses.
The revised fiscal deficit for 2008-09 is now estimated at as high as 6 per cent of gross domestic product (GDP), against the budget estimate of 2.5 per cent, acting Finance Minister Pranab Mukherjee told Parliament.
In money terms, the fiscal deficit is Rs 3,26,515 crore against the intended Rs 1,33,287 crore — nearly 2.5 times the targeted amount.
Revenue deficit, the component of the fiscal deficit that shows the gap between current revenues (including borrowings) and current expenses, has shot up to more than four times the budgeted figure in the current year, and is estimated at 4.4 per cent of GDP against 1.0 per cent.
The Centre, expecting the new government that will come to power after the elections to clean up the act, estimates fiscal deficit in 2009-10 at 5.5 per cent of GDP, with revenue deficit at 4 per cent, based on no change in tax rates.
The government, under the Fiscal Responsibility and Budgetary Management Act, (FRBM) expected to totally eliminate revenue deficit by 2009-10 and rein in fiscal deficit to below 3 per cent.
“Conditions in the year ahead are not likely to be normal and, therefore, the high fiscal deficit is inevitable. We will return to FRBM targets once the economy is restored to its recent trend growth path,” Mukherjee said.
The government is spending beyond what is considered prudent, and the numbers show a dramatic spike. Fiscal deficit was brought down from 4.5 per cent of GDP to 2.7 per cent in 2007-08 and revenue deficit declined from 3.6 per cent to 1.1 per cent over the period.
The revised expenditure for 2008-09 overshot the budget estimate by over Rs 1.5 lakh crore. For the fiscal 2009-10, gross tax revenue receipts at existing rates of taxation are estimated at Rs 6,71,293 crore and the Centre’s net tax revenue at Rs 5,00,096 crore.