Budget may aim at 4% fiscal deficit in 2006-07

The forthcoming Budget may aim at least 0.3% reduction in fiscal deficit to 4% of GDP.

The forthcoming Budget may aim at least 0.3 per cent reduction in fiscal deficit to 4 per cent of GDP despite the pressure for hiking expenditures on social schemes and infrastructure.

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If the deficit is pegged lower, government's market borrowing is also likely to come down next fiscal and ease the pressure on interest rates.

With higher economic growth and buoyant revenue collections, Government is likely to meet the fiscal deficit target of 4.3 per cent of GDP for 2005-06.

Though Finance Minister P Chidambaram had pressed the "pause button" on cutting deficit in the last Budget, sources said government will stick to the targets fixed in the Fiscal Responsibility and Budget Management Act in 2006-07.

Thus, the coming budget may aim at 0.3 per cent of GDP cut in fiscal deficit to 4 per cent or less while revenue deficit is likely to be pared by 0.5 per cent to 2.2 per cent.

This fiscal, higher economic growth estimated at 8.1 per cent and over 20 per cent growth in tax collection may help Finance Ministry to keep fiscal deficit below 4.1 per cent.

Industry experts say that lower deficit will ensure higher GDP growth and stable interest rates.

Higher growth in economy, in turn, will ensure buoyancy in revenue collection, they said.

The main problem, sources said, is the mounting pressure for stepping up government expenditure especially in social schemes like National Rural Employment Guarantee Scheme, National Rural Health Mission, rural housing and Universal Education and mid-day meal scheme.

However, there could be savings from other schemes which would be channelised into new schemes.

Some social schemes may also be merged under the ambitious Bharat Nirman programme.

The Planning Commission has sought 40 per cent increase in Gross Budgetary Support to states, most of which goes for social projects.

Finance Ministry, sources said, may not be able to accomodate the request of plan panel and raise GBS to that extent.

While their rigidities in cutting expenditures for social schemes and subsidies, the Finance Ministry will once again focus on raising tax revenues to cut deficit.

While there may not be any alteration in income and corporate tax rates, the indirect taxes may be rationalised and more services brought under the tax net to generate additional revenues.