Though the finance ministry has revised the fiscal deficit target to 5.3 per cent of GDP for this financial year from the 5.1 per cent estimated in the Union budget, it will not get much leeway in the remaining months to meet the reduced figure. This is despite the latest deficit figures giving it a bit of a breather. According to the figures released on October 31, the deficit till September had inched down to 65.6 per cent of the budget estimate (BE) for 2012-13, compared with 65.7 per cent till August. Even then, some economists pegged the deficit at 5.8 per cent of GDP for 2012-13, roughly the same as last year.
The fiscal deficit figure would be revised from Rs 5.13 lakh crore to Rs 5.38 lakh crore for 2012-13 for the target of 5.3 per cent of the GDP, assuming nominal economic growth stands at 14 per cent as estimated in the budget. Given that real GDP growth is much below expectations (7.6 per cent of budget estimate by the ministry of finance), and inflation is 7.5 per cent, nominal GDP will be marginally lower than what was estimated in the budget at Rs 101 lakh crore. The lower figure will make the deficit look higher as a proportion of GDP at any given level of the government’s excess expenditure. The Kelkar panel pegged nominal GDP growth 50 basis points lower than the BE at 13.5 per cent. In that case, the absolute nominal GDP number will see a dip of Rs 44,561 crore.
Economists say even the 5.3 per cent target for the deficit is an ‘ambitious one’ , given slowing growth, which will impact economic activity, resulting in slowing tax and non-tax revenue.
C Rangarajan, chairman, Prime Ministers’ Economic Advisory Council, says the new deficit target is achievable, as “the nominal income will still be in the same level represented during the budget at 13.5-14 per cent.