Fiscal deficit for April-September crosses 70% of full year target

India’s fiscal deficit for the first half of current financial year has crossed 70% of its full year target, validating fears that the government's ability to meet its fiscal deficit target could go skewed as economic slowdown crimps tax collections.

During April-September 2011, as per the government data, the fiscal deficit stood at Rs 2.92 lakh core, which is almost 71% of the Rs 4.13 lakh crore targets for the 2011-12.  This indicates that government may cross the fiscal target of 4.6% of gross domestic product (GDP). However, experts are of the view that the government’s fiscal deficit to be around 5.5% of the GDP. 

Last year, in the same period, fiscal deficit was around 34.9% of the budgetary target, however, it was mainly because of the inflow of more than Rs 1 lakh crore from the auction of 3G spectrum. Last month, Finance Minister Pranab Mukherjee, had also expressed its concern over meeting the fiscal deficit target. In the current fiscal year, to meet any shortfall in small savings, the government has already planned to borrow around Rs 52,800 crore more in the second half of the year. But the capital markets are not convinced.

 The first three auctions of the government bonds in the remaining 6 months of 2011-12 have already passed on the primary dealer, although, yields on benchmark 10-year paper rising to 8.85% from 8.29% in the start of the year. In case of any shortfall of revenues, any further borrowing to meet the gap may prove very costly.

On the other hand, in order to control the expenditure finance ministry has asked other department and ministries to choke discretionary expenditure. However, modest growth in the tax revenue against budgeted 18.4% has hampered financial health of the government. Plan expenditure was around 40.3% of the budget estimates for the first half of 2011-12 compared to 45.5% in 2010-11.

In April-September 2011, the gross tax collections surged by 10.2% compared to last year. However, after setting aside the share of states it is only 4.1% due to heavy tax refunds. The slowdown of economic growth is now visible in the industrial growth which stood at 4.1% in August compared to 8% at the starting of 2011-12; therefore revenue collections has also moderated. Excise collections declined by 8% in September from last year, whereas customs collections increased by 7% because of the rupee depreciation.