Jaitley’s fiscal deficit targets to go haywire as May deficit touches 45.6% of budget

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Finance Minister Arun Jaitley has a very tough task ahead of him in presenting the budget next week. The May numbers released yesterday have put the fiscal deficit at 2.4 lakh crore or 45.6% of the budget, far more than the last year’s same number at 33.3%.

Chidambaram’s 2013-14 fiscal deficit was at 4.5% of GDP, or 5,08,149 crores, down by 0.4% from the previous year. His projected target for 2014-15 was 4.1%. But, looking at May numbers, Jaitley will have to revise the target significantly from the 4.1% to touch 4.5%. The Deutsche Bank too has indicated yesterday that the number could be revised to 4.3% to 4.4% of GDP. Any further higher revision is not expected currently, but might be met with harsh reactions from the market if carried out. But the BJP government may take the route of bigger divestments to cover this gap, rather than raise the fiscal deficit numbers, say market experts.

“There was always a reservation over the 4.1% target set for the fiscal deficit as the revenue side was over budgeted, Government will need to make huge efforts to collect revenue and tax collections would not help here given the state of the economy, but an aggressive divestment strategy. An expenditure cut can be ruled out, hence it needs to be seen what innovative ways government announces in the budget to generate higher earnings,” said DK Joshi, chief economist, Crisil.

“The fiscal deficit numbers will be revised up to 4.5% of the GDP from 4.1% now, Disinvestment receipts would most likely touch Rs 70,000 crore,” said Soumya Kanti Ghosh, chief economic adviser, State Bank of India.

5.28 lakh crore was the projection of fiscal deficit in the interim budget. “Trends for the first few months of a fiscal year should be interpreted with caution, as inflow from certain revenue streams is proportionately low in the initial months, including disinvestment and gross tax revenues, whereas several commitments are spread out fairly evenly throughout the fiscal year, including salaries, pensions, interest payments and devolvement of taxes to the states,” said Aditi Nayyar, senior economist, ICRA.

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