Fiscal Deficit: Challenges of Budget 2010 in india
The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. Generally fiscal deficit takes place due to either revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development. A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.
India's fiscal deficit, including the Centre and states, would be among the highest in the world and likely to be 10.3 per cent of GDP in the current fiscal and 10 per cent in the next fiscal.
The deficit would not come down substantially over the next few years due to increase in spending, especially on higher wages and unemployment benefits as well as a large increase in the government's interest burden.
India's interim budget envisages a large increase in central government spending, both in current and next fiscal, making the central deficit rise to 6 per cent of GDP in 2008-09 and 5.5 per cent in the next fiscal.
The gains from a reduction in commodity prices and therefore in the subsidy bill, will be more than neutralised due to substantially weaker revenues and election-related spending pressures.
the government stimulus measures came at an right time for the rapidly slowing economy, but the government spending may be permanently increased.
The government's borrowing program will also rise dramatically to a budget estimate of $65 billion in 2009-10 from $28 billion in 2008-09, and will likely remain at elevated levels.
Fiscal stress is clearly evident. Revenues are going to fall short of annual target. Borrowings will also go up. prediction of fiscal deficit is 6.2 per cent of GDP.
The yield on the benchmark 10-year bond rose briefly to 6.21 per cent from 6.18 per cent after the deficit data and ahead of the results of a 100-billion-rupee debt auction.
In February, the government set a fiscal deficit target of 1.33 trillion rupees, or 2.5 per cent of gross domestic product (GDP), for the 2008/09 fiscal year, lower than 2.8 per cent in the previous year.
Ratna Sinha
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