GDP at market price to cut deficit

NEW DELHI: Finance minister Pranab Mukherjee will be able to present a much-lower-than-budgeted fiscal deficit for the current fiscal year this budget, thanks to a big 20.3% jump in GDP at market prices.

Going by the advance estimates for GDP in 2010-11, fiscal deficit could fall to about 4.7%.

Net borrowings, or the fiscal deficit, of 3,81,000 crore translated into 5.5% of the GDP, based on a nominal GDP of 69,34,700 crore estimated at the time of budget.

The central statistical organisation pegs the nominal GDP at 78,77,947 crore.

The government had earlier said it will borrow 10,000 crore less. The borrowing of 3,71,000 crore, on an expanded base, yields a deficit of 4.7% of GDP.

Since the deficit is in current rupees, the GDP figure used for calculation is also in current rupees and not that adjusted for prices or real GDP.

Mr Mukherjee now has the option of borrowing more or patting himself on the back by showing lower numbers.

Though the government has proposed additional net spending of 75,000 crore, the extra 65,000 crore raised from 3G and broadband auction and buoyant revenues are expected to take care of that.

Indirect tax collections are up 50% in the first eight months of the current fiscal from a year ago. Direct tax collections grew by over 20% in April-January, 2011.

Mr Mukherjee has already asked both the Central Board of Direct Taxes and Central Board of Excise and Customs to collect more than the targeted 7,46,000 crore in the current fiscal.

These extra revenues could also come handy with subsidy bill expected to go up due to recent rally in the crude prices.

International fertiliser prices are also on the rise, forcing the department of fertiliser to seek 30,000 crore of extra subsidy in the current fiscal.

But DK Joshi, chief economist, crisil, cautions against any slackening on the part of the government to contain deficit.

" This doesn't ensure future reduction in the deficit levels. The government will have to work hard in the coming years to reach its target," he said.