In just the first two months of 2013-14, the fiscal deficit has hit one-third of the target set for the full financial year.

According to the data from the Controller General of Accounts (CGA), the fiscal deficit during April and May stood at Rs 1.81-lakh crore, which is 33.3 per cent of the annual target of Rs 5.42-lakh crore.

The Government aims to bring the fiscal deficit down to 4.8 per cent of GDP (gross domestic product) in 2012-13 against 4.9 per cent in 2012-13.

The fiscal deficit is the difference between what a government earns (minus borrowing) and what it spends.

This difference is bridged by borrowings. The higher the borrowing, the less the money available for banks to lend to corporates and individuals.

The data come a day after the lower-than-expected current account deficit helped in the recovery of the stock market as well as the rupee.

Finance Minister P. Chidambaram had mentioned that controlling the twin deficits — fiscal and current account — had been a challenge.

As per the data, fiscal deficit during the first two months of 2013-14 was nearly Rs 40,000 crore.

In terms of percentage of the target, it rose to 33.3 per cent from 27.6 per cent. The rise was due to lower tax revenues against higher Plan expenditure.

However, the expenditure trend can be taken as a positive, as development expenditure is rising.

Commenting on the data, Aditi Nayar, Senior Economist with rating agency ICRA, said, “It is somewhat premature to discern trends regarding the size of the annual fiscal deficit based on the trends for April-May 2013, particularly with tax refunds being considerably larger than what they were in the first two months of 2012.”

Factors that will critically impact the magnitude of the fiscal deficit in 2013-14 include the extent of revival in GDP growth, earnings from corporate tax and excise duty as well as the actual subsidy bill, she added.

Nayar said notwithstanding the revisions in diesel price and moderation in crude oil price, the rupee’s depreciation had added to the worries regarding the level of under-recoveries of oil marketing companies and the Government’s fuel subsidy Bill.

“However, an improved outlook for the monsoon, compared with last year, would help restrict expenditure on programmes such as MGNREGS (rural job scheme),” she added.

shishir.sinha@thehindu.co.in

(This article was published on June 28, 2013)
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