Fiscal deficit set to sharply deteriorate from now on

India’s budget deficit for April-September 2008 may not compare very badly with the same period a year ago, but it threatens to  deteriorate in the months ahead as the government may have to step up spending to stimulate the economy even while tax revenue growth is slackening amid slowing corporate activity.

The fiscal deficit for the six months to September 2008 was an estimated 4.1% of the nominal GDP compared to 3.8% at the end of the same period last year. Likewise, revenue deficit for the same period was 3.1% at the end of first half of the current fiscal compared to 2.9%, a year ago. These numbers will likely worsen as the arrears of the Sixth Pay Commission awards due to be paid this year are fully disbursed.

Already, data made public by the Controller General of Accounts (CGA) on November 28 point to further deterioration of the fiscal position. The fiscal deficit for the seven months to October was higher by 42% compared to a year ago, while it was only 26% higher at the end of September.

Likewise, revenue deficit for the seven months to October was higher by 51%, from a year ago, compared to 28% for the six months to September. That may be attributed to the slowdown in tax revenues of the Centre and to some extent to the rise in plan expenditure.

The CGA data also showed that gross tax revenue growth slowed to 20.3% for April-October from a year ago, after rising by 25.3% in the six months to September. Of particular concern is the slowdown in growth of direct taxes — corporation tax and securities transaction tax. READ AT TIMES OF INDIA

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