Economists expect the fiscal deficit to rise to about 6 per cent by March-end despite the government’s measures on reforms.

According to Rupa Rege Nitsure, Chief Economist, Bank of Baroda, “The fiscal deficit is likely to stay closer to 6 per cent as the disinvestment and telecom spectrum allocation programme have not worked out so far. Further, tax collections are likely to be less and there is difficulty in dealing with austerity measures due to subsidies.”

Amid low investor and consumer confidence, the economic activity has suffered, she added.

“Real sector cannot be buoyed immediately. I do see a threat of a downgrade for India which “might affect the investment cycle and capital inflows,” said Nitsure.

Sunil Sinha, Principal Economist, Crisil, expects the fiscal deficit to remain close to 5.8-5.9 per cent. “Our main cause of high fiscal deficit is our rigid expenditure pattern. Most measures to address the situation are based on revenue augmentation. In addition, due to elections in 2014, the Budget is unlikely to see expenditure cuts,” Sinha said.

Reserve Bank of India Deputy Governor Subir Gokarn had recently said that India’s fiscal deficit is somewhere around 5.5 per cent of the GDP and will take time to get back to 2008 levels

“The fiscal deficit was at 2.5 per cent in 2008… Due to build-up of subsidies following high oil prices, it grew to around 6 per cent of GDP and is now somewhere in the region of 5.5 per cent, Gokarn said at an Indo-Swiss Chamber of Commerce meeting. The RBI deputy governor said that the global environment has turned hostile and the markets were not recovering as fast as expected. As a result, the “exports are suffering”.

Global environment hostile

“Also, commodity prices remain stubborn due to many reasons. Hence, everything that we’ve seen happen during the virtuous cycle, which was a combination of favourable global and positive domestic developments, has turned around,” Gokarn said.

Sinha said “External stimulus to India’s growth story certainly doesn’t exist. We have to rely on domestic measures and domestic growth story. I see no revival signs in the next fiscal year and situation in 2013 will be similar to 2012.”

Beena.parmar@thehindu.co.in

(This article was published on December 4, 2012)
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