Good rains necessary to achieve fiscal deficit

Good rains necessary to achieve fiscal deficit
The Indian government is targeting the fiscal deficit for the current year period, 2011-12, to be 4.6% against 5.1% achieved during last financial year. Finance ministry has announced that the fiscal deficit for current year depends on the condition of Monsoon as a lower than expected rainfall will impact the revenue collections leading to higher borrowing and higher fiscal deficit.

Credit rating agency CRISIL has predicted that the slowdown of the economy can increase the deficit ratio (fiscal deficit-to-GDP) from the current estimate of 4.6%.

Government is expecting to increase their indirect tax collection due to higher rural spending on the backdrop of good monsoon season. This will help Govt. to weather marginal drop in the overall revenue collection due to slowdown in the economy.

RBI has announced the GDP growth rate for the current fiscal to be around 8%, from the previous estimate of 9% by ministry of finance, on the backdrop of increase in the policy rate by 50 basis points. RBI is trying to contain the inflationary pressure even at the cost of growth rate.

The slower growth of the economy along with the increase in the commodity prices is going to hurt the profit of the company leading to lower than expected tax collection. The rising interest rate is expected to reduce the tax collection from excise and customs too.

Ministry of finance is waiting for the monsoon data before making the mid-term correction for the revenue collection. The first advance tax collection is going to provide a better insight into the corporate performance to make the necessary changes in the GDP growth and fiscal deficit estimates.

Strong growth of 38% in indirect tax collection and 58% in custom duties during last fiscal year led to reduction in subsidy load for the Govt. and the revenue increase toward the end of year prompted the unrealistically lower expenditure forecast of 3.6%.

The lower than expected revenue collection and higher expenditure during the current fiscal year is going to put an upward pressure on the estimated fiscal deficit of 4.6%.

Also, the uncertainty in the market is going to make the disinvestment target of 40,000 crore set for this year difficult to achieve. Even the 3G spectrum allocation that fetched windfall profit to the Govt. close to $14.6 billion, which helped reduce the deficit figure is unlikely to be such a huge success this fiscal.

Read more about: gdp, deficit, crisil, rbi
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