India's high fiscal deficit; Would it come down in 2012?

India's high fiscal deficit; Would it come down in 2012?
Unlike in 2010-11, when government managed to improve its fiscal deficit target after auctioning the 3G spectrum, this year, the government has failed to hit the target largely by around 1 per cent.

Fiscal deficit was targeted at 4.6 per cent for current fiscal, but as the year ends, experts' estimates say that deficits would reach up to 5.5 per cent.

During the April-October 2011 period, India's fiscal deficit was around 75 per cent of targeted level, and much higher than 42.6 per cent during the same period a year ago.

The alarming rise in expenditures and fall in revenues were the result of poor policy reforms or in simple terms 'policy paralysis'. Analysts have been of the view that India's tax collections are likely to miss the target by at least Rs 30,000 crore.

The slowing tax collections have been evident of the fact that against the target of Rs 5.85 trillion from direct taxes in the current fiscal, the net direct tax collection was only Rs 2.35 trillion during the first eight months of this fiscal.

Above that, India's food and subsidy bill is also expected to spurt by over Rs 70-80,000 crore after the new Food Security bill released, and thus is the fiscal deficit expected to do.

Going ahead, govt has been looking for borrowings through bond auctions, to overcome fiscal deficit, which is also pushing up bond yields, thus making RBI's worries more and more.

In order to overcome this, either restructuring of expenditure should be done or expanding the revenue base through tax reforms like the goods and services tax (GST).

Dion Global Solutions Ltd

Read more about: rbi, government, fiscal deficit, tax
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