Restricting fiscal deficit to 5.3% of GDP a challenging task: Govt

18 Dec 2012 Evaluate

Given the subdued tax collections, lower than expected receipts from the 2G telecom spectrum auction, disinvestment, and a higher subsidy burden, achieving the fiscal deficit target of 5.3% of GDP in the current fiscal would be a challenging task for the government. As per the government in the current fiscal, subsidies on food, fertilizer and petroleum would be higher than estimated, collections from corporation tax; excise and customs duty might fall short of the Budget target.

Moreover with the present trend and prevailing scenario in the capital market, achieving the disinvestment target of Rs 30,000 crore will also be difficult to meet, since so far it has been able to raise only about Rs 7,000 crore from disinvestment and the proceeds from 2G spectrum auction would be much lower than the estimated due to dull response to the recently concluded 2G auction.

In the mid-year economic review 2012-13 tabled in Parliament, chief economic advisor Raghuram Rajan said the government has kept fiscal deficit target at 5.3 per cent, despite a likely shortfall in revenue collections, as the government expected to make up for the loss under other heads. He said the government can reduce its fiscal expenditure to partially offset the higher-than-budgeted outgo on subsidies and the slippage in revenue collection.

By adding further he said the slippages in revenue collections is due to the stressed macroeconomic environment as the corporate profit earnings are not growing at the same pace, it had been growing at earlier. Rajan hoped that the pace of disinvestment will pick up in the remaining fiscal and all the expenditure heads plan as well as non-plan, will be examined to achieve the deficit target.

Referring to RBI’s policy stance to contain inflation, the report said high policy rates have affected corporate profitability and therefore the corporation tax mop-up. It said the targets might get exceed on income tax and services tax, but excise and Customs duty collections would get affected by slower growth, a global economic slowdown and fluctuations in exchange rates.

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