Fiscal Deficit woes

The UPA Government, which had expressed a strong intent at the beginning of its term to go by the rule-book in achieving the Fiscal Responsibility and Budget Management targets, is completing its five-year term without achieving those fiscal targets.

The FRBM targets of 3 per cent fiscal deficit and the elimination of revenue deficits will not be met and the goalposts have been shifted in the wake of the economic compulsions arising from the global financial meltdown. Things may not look up even in the next fiscal.
Rupee pressured

The huge fiscal deficit – which is estimated to cross 11 per cent (as percentage to GDP) by March 2009 – has prompted foreign funds to rush out of India, placing downward pressure on the rupee. Standard & Poor’s, international credit rating agency, had recently revised the outlook on India’s long-term sovereign credit rating to “negative” from “stable”.

It would be wrong to blame the financial meltdown alone for the fiscal mess because the subsidies on food, fertiliser and fuels have also played a part when the global commodity cycle was on the upswing. But for the income-tax bounty that came the way of the UPA Government, many of the new schemes could not have been rolled out.

Critics feel that India could have done well to save some portion of the tax collections to be spent in the “bad times” rather than splurging them on “politically dividend paying” farm debt waiver and pay hike for government employees.

The three rounds of stimulus packages have only been the last nail in the fiscal coffin. The latest package, unveiled after the Interim Budget, involved revenue foregone of about Rs 30,000 crore through excise duty and service tax cuts.

In 2008-09, the counter-cyclical fiscal measures to minimise the impact of the global meltdown resulted in a cash spend of over Rs 1,50,000 crore. There was unprecedented rise in the subsidy bill of the Government for 2008-09. The higher subsidy bill will be met through issuance of special securities to the tune of Rs 95,942 crore for the fiscal year under review. While oil bond estimates for 2008-09 stood at Rs 75,942 crore, fertiliser bond estimates stood at Rs 20,000 crore.

via BL