FM likely to revise fiscal deficit to below 5% of GDP

NEW DELHI: This is something every economist and analyst worth his spreadsheets will be looking at closely. The fiscal deficit. And, going by happenings so far, the Centre is likely to scale down its fiscal deficit to less than 5% of GDP (Gross Domestic Product) in the revised estimates for ’04. Thanks to the buoyancy in GDP growth, coupled with a massive expenditure compression, the Centre’s fiscal deficit is set to be projected at 4.9% of GDP, compared to the original budgetary target of 5.6% of GDP.
Finance minister Jaswant Singh had recently said that there would be a pleasant surprise on the fiscal deficit front when he presents the vote on account. Going by trends till the December-end ’03, the government has reasons to project a healthy fiscal state.
The fiscal deficit is treated by rating agencies as the premier index of macroeconomic stress. For this, of course, they look at the combined fiscal deficit of the Centre and the states.
A significant decline in the fiscal deficit of the Centre would, however, be received extremely favourably by rating agencies. The reduction in fiscal deficit that the Finance Minister is likely to present today, as compared with the fiscal deficit achieved for ’02-03, will be about one whole percentage point of GDP.
The Centre’s fiscal deficit came down to a low of 4% of GDP in 1996-97, and rose steadily thereafter to reach 6.1% of GDP in ’01-02. It declined by 0.2% in ‘02-03. A 1% fall in the fiscal deficit-GDP ratio would therefore be very significant. The fiscal deficit declined to Rs 92,435 crore at the end of December ’03, compared with Rs 93,656 crore till November ‘03. The deficit amounted to 60.2% of the budgetary target of Rs 1,53,637 crore and was 7.1% higher than the deficit during April-December ’02.
Tax revenues have been buoyant, particularly corporate tax collections. Corporate tax revenues are projected to be Rs 10,000 crore higher than the budgetary target of Rs 44,700 crore for ’03-04 — on the back of an anticipated increase in collections in the fourth instalment due by March 15.
The buoyancy in tax and non-tax revenues has offset the increase in both plan and non-plan expenditure till the end of December. While the food subsidy bill has risen, defence expenditure may be far below the budgetary target of Rs 65,300 crore.
There could be savings in other heads as well.