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India's fiscal deficit was brought down to 3.17% (Rs 1,43,653 crore)
of the gross domestic product in 2007-08 from 3.8% in 2006-07. The
government has promised to cut the deficit further to 2.5% of GDP
(Rs 1,33,287 crore) by the end of 2008-09, but looking at the way
things are going, economists say, it is unlikely the government will
meet its target
The budget document also says that the Plan expenditure is going to
rise by around Rs 38,000 crores or around 19 per cent. Non-plan
expenditure will rise by a much smaller amount, by Rs 64,806 crore
or 17 per cent. The actual figure may be much higher.
The fiscal deficit for 2008-09 is forecast at 2.5 per cent of GDP, lower
than the deficit for 2007-08 of 3.1 per cent of GDP for 2007-08, and
also lower than the 3 per cent of GDP mandated by the Fiscal
Responsibility and Budget Management (FRBM) Act. It is highly
unlikely that the government will achieve its forecast.
Economists point out that all oil bonds and a part of fertiliser bonds
are not accounted for in the Budget. This means that the government
does not have to include these expenses while calculating the surplus
or deficit for the year.
"We are seeing the centre's fiscal situation is improving but I think
there are several underlying fiscal pressures not entirely evident in
the numbers," Reddy told a conference in New Delhi on 26 May
2008.
India aims to bring down its fiscal deficit to 2.5 percent of GDP for the
2008-09 financial year, compared to 3.1 percent in 2007-08, but
financial analysts fear a $17 billion scheme to write off the debts of
millions of small farmers and tax cuts could trip up efforts. According
to the Fiscal Responsibility and the Budget Management Act
operationalised in 2004-05, the government must reduce its fiscal
deficit to 3 pct of GDP and wipe out its revenue deficit by 2008-09.
But it has already missed its revenue deficit target and expects it to
be 1 percent of GDP in the year to end March 2009. Reddy said the
fiscal deficit as a percentage of gross domestic product continues to
be among the highest in the world.
Market borrowings finance more than half of the gross fiscal deficit
and the rest of the gap is filled by small savings, provident funds,
reserve funds and deposits and advances.
The gross fiscal deficit covering both state and central government is
estimated at 5.5 percent in 2007-08, according to official estimates,
down from 9.5 percent in 2002-03.
Fiscal deficit will be more in the coming months due to oil prices.
Crude oil price of $35 per barrel in BJP government has been
increased to $135 in Congress government which is nearly $100
difference per barrel. Congress Government is searching many
options to recover the loss of PSUs and trying to reduce other taxes
and duties. Increase of each one dollar hike in crude oil will give huge
loss of Rs.3000 crore to Public Sector Undertakings. Central
Government has no option except to increase the prices of petrol,
diesel and gas for recovering some extent of losses