Fiscal deficit in six months crosses 70% of full-year target

NEW DELHI: India's fiscal deficit for the first six months has crossed 70% of its full-year target, confirming fears that the government's budget arithmetic could go awry as economic slowdown crimps tax collections.

Fiscal deficit for the April-September period stood at 2.92 lakh crore, government data released on Monday showed, almost double of the year-ago period.

"Things are not looking too good. The best the government could do with this run rate is 5.3-5.4% of GDP," said HDFC Bank chief economist Abheek Barua.

The government has set a target of 4.6% of gross domestic product (GDP), but most private forecasts have already pegged it at over 5.5%. Fiscal deficit for the year-ago period was 34.9% of budgeted estimates, but it was mainly on account of the over 1 lakh crore bonanza from auction of 3G spectrum. Last month, Finance Minister Pranab Mukherjee, too, had conceded that meeting the fiscal deficit target for the year would be a challenge.

The government has already said it will borrow 52,800 crore more in the second half of the year to meet any shortfall in small savings. However, the financial markets are not convinced.

The first three auctions of government bonds in the second half of the fiscal have already devolved on the primary dealer, despite yields on benchmark 10-year paper rising to 8.85% from 8.29% in the beginning of the year. In the event of a shortfall in revenues, any extra borrowing to bridge the gap could prove very costly.

The strict stricture sent out by the finance ministry to other departments and ministries has almost choked discretionary expenditure, but a modest growth in tax revenues against budgeted 18.4% has dented finances. Plan expenditure was only 40.3% of the budget estimates at the end of the first six months, against 45.5% in the year-ago period.

"There could be substantial improvement in expenditure management, though subsidy outgo on food could go up," Barua said.

Gross tax revenues for April-September were up 10.2% from the same period last year. On a net basis, after setting aside the share of states, it is up only 4.1% because of heavy refunds.

Worryingly, the slowdown in growth, evident in the drop in industrial growth to 4.1% in August from over 8% at the beginning of the fiscal, is beginning to show up in tax collections. Excise collections dropped 8% in September from a year-ago period, while customs collection was up 7%, thanks to rupee depreciation.