Zero fiscal deficit target; suggests Eco Survey with riders

NEW DELHI: The government should assess the possibility of having a new target of entirely eliminating fiscal deficit, but with a flexibility that it could be widened at a time of economic downturn, suggested the Economic Survey.

"Examine the possibility of a new target of zero fiscal deficit on a cyclically adjusted basis," recommended the survey tabled in Parliament on Thursday.

Fiscal deficit has widened to over 6 per cent last fiscal, after economic slowdown forced the government to cut taxes and increase expenditure.

Commenting on the suggestion, HDFC Bank economist Jyotinder Kaur said, "The prescription will not rule out the possibility of fiscal expansion during the period of slow down, but in the normal conditions it wants the Government's account in balance."

As Fiscal Responsibility and Budget Management (FRBM) Act mandated targets for fiscal deficit and revenue deficit have come to an end last fiscal, the survey said it would be imperative to get bck to the path of fiscal consolidation with FRBM II at the earliest.

It suggested to the government to review the possiblity of zero fiscal deficit as part of FRBM II.

Since the government may have to provide another stimulus package, which may widen fiscal deficit further, the survey did not state that fiscal deficit targets could be achieved this year.

"It is an imperative to return to the FRBM targets for the fiscal deficit at the earliest, possibly by 2010-11," the survey added.

The FRBM Act mandates the government to reduce fiscal deficit by 0.3 per cent every year to bring it down to three per cent of GDP by 2008-09 and revenue deficit by 0.5 per cent to eliminate it.

However, fiscal deficit touched 6.2 per cent in 2008-09, pressured by stimulus packages announced by the government. For this fiscal, it is projected to be 5.5 per cent of GDP in the interim budget, but it has already widened to touch over one-fouth of the estimates in the first two months.