INDIA’S fiscal deficit, or government spending over and above its receipts, reached 40% of the estimate set for the fiscal year in the first four months as the government doled out a number of incentives to stimulate the economy.
While the deficit in the first four months is slightly more than the estimate, a finance ministry official said this does not mean that the government will need to borrow more than it said in the Budget in July. Fiscal deficit is mostly met by government borrowings.
At the end of July, fiscal deficit stood at Rs 1, 58,554 crore, or 39.5% of the budgeted Rs 4, 00,996 crore for the entire fiscal, according to data released by the government’s internal audit. The Budget for 2009-10 had pegged the fiscal deficit at 6.8% of the GDP.
Finance secretary Ashok Chawla said in Mumbai that there is no need for altering the borrowing plan. The government has planned a net borrowing of Rs 3, 97,957 crore for the fiscal as it seeks to plug the 16-year-high budget deficit.
The government’s spending shot up sharply as it spent more to stimulate the economy. This extra expenditure is largely being financed through borrowings, giving rise to fears that this could crowd out private sector borrowings and push up interest rates.
Finance minister Pranab Mukherjee recently said the government’s borrowings will not elbow out private borrowings or jack up interest rates.
Revenue deficit for the four months till July stood at Rs 1,35,000 crore, about 48% of the budget estimate of about Rs 2,83,000 crore. Revenue deficit in the year-ago period had crossed 180% of the budget estimate by July.
Revenue deficit is considered regressive as it is seen as borrowing for consumption.
The FRBM Act had sought to eliminate revenue deficit by 2009-10.
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