Fiscal deficit still a cause for worry | india | Hindustan Times
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Fiscal deficit still a cause for worry

india Updated: Mar 17, 2012 00:49 IST
HT Correspondent

Finance minister Pranab Mukherjee pegged the fiscal deficit for 2012-13 at 5.1% of the gross domestic product (GDP), lower than the current year's revised 5.9%, but economists said that government borrowings despite divestment of equity in state companies and spectrum sale are still in a worrisome zone.

Mukherjee said the Budget was aimed at giving boost to "growth with stability" and there was a "determined effort to regain the path of fiscal consolidation."

The medium-term fiscal policy statement has projected that the fiscal deficit will decline further to 4.5% of GDP in 2013-14 and to 3.9% in 2014-15.

The government plans to finance 93% of the deficit through market borrowings against 84% last year, pegging net borrowing at Rs 4.8 lakh crore, 10% higher than 2011-12 and gross borrowing at Rs 5.7 lakh crore, a rise of 12%.

The concept of effective revenue deficit, introduced in the last budget to address the structural imbalances in the revenue account, is being brought in as a fiscal parameter.

Effective revenue deficit is the difference between revenue deficit and grants for creation of capital assets.

"Focusing on this will help in reducing the consumptive component of revenue deficit and create space for increased capital spending," said Mukherjee.

Mukherjee also said the method of "Medium-term Expenditure Framework Statement" is being introduced in the Act.

This statement will lay out a three-year rolling target for expenditure indicators. It would help in undertaking an exercise for allocating resources for prioritised schemes and weeding out others that have outlived their utility.

Economists, however, said the chances of a fiscal slippage have not diminished yet.

"Net market borrowing of the government will rise around 10% to R4.79 lakh crore in 2012-13 despite the decline in the fiscal deficit (as % of GDP)," said Rajeev Malik, senior economist, CLSA,broking and research firm.

"This is disturbing as it is bound to put additional strain on domestic liquidity and could generate fears about crowding out of credit to the private sector."

"The government faced the option of projecting a lower but unrealistic deficit number, or a higher, more credible number," said Sonal Varma, economist, Nomura.

"Choosing the latter is prudent, in our view."