The Finance Minister has set a fiscal deficit target of 5.1% of GDP for the next fiscal year. But realization of the set target is difficult if some favourable factors are not followed. The first one is that of the fuel subsidy bill. The fuel subsidy allocated for the last year was just 23000 cores rupees. This year, the allocation has been increased to Rs 43000 crores. Of course, the increased allocation may not be enough if the potential tension in the Persian Gulf breaks out into a war situation.
Similarly, the food subsidy allocation of Rs 60000 crores will be insufficient if the government goes for the food security bill. On the subsidy front also, there is chances for overshooting.
Another threat for fiscal slippage is the Rs 30000 crore disinvestment programe. The target is heavy in the wake of low sentiments in the equity market. A few weeks back the last minute rescue by LIC has saved the ONGC offer for sale.
Perhaps, a major realistic feature of the budget is that the Finance Minister has not made any effort to underestimate the expenditure, unlike the last budget. In the last budget, expendidture has set to increase by just 3.4%, but actually increased by more than 10%.
Total expenditure for the next year is estimated at Rs 15 lakh crore which indicates an increase of around 13% increase in expenditure. Tax revenue, on the other hand is targeted to increase by around 22%. The high expenditure increase shows sincere budget estimate for 2012 -13.
So, the chance for expenditure overshooting is limited in the new budget estimate except in the case of fuel subsidy if the unrest in Middle East deepens. Similarly, the scope for revenue shortage is also limited to disinvestment proceeds. So, the present budget is more realistic compared to the last one and the chance for fiscal deficit to escalate to high levels is minimum.
Economic growth and fiscal deficit
GDP Growth (%)
Fiscal Deficit (% of GDP)