Fiscal deficit crosses 84% of FY’14 target in 7 months

The government's promise to keep deficits under check is unlikely to be kept with the fiscal deficit crossing 84 per cent of the budgeted target for the full year within the first seven months of the current fiscal.

Fiscal deficit for the first seven months of the current fiscal stood at Rs4,58,000 crore, about 84.4 per cent of the full-year target of Rs5,42,000 crore, data released by the Controller General of Account (CGA) showed.

Against this, fiscal deficit during the first seven months of the previous fiscal (April-October 2012-13) stood at 71.6 per cent of the full-year target.

The spike in fiscal deficit has been due to an increase in both Plan and non-Plan expenditure and a slowdown in tax collections.

In fact, there seems to have been a spurt in government expenditure in October as the deficit level at the end of September was 76 per cent of the target.

Against the targeted growth of 19.3 per cent in tax collection for first seven months, the actual growth has been around 6.8 per cent. To achieve the budget target, tax collection would have to grow at nearly 30 per cent.

A higher fiscal deficit would lead to increased government borrowing from the market, which could lead to a further increase in expenditure on account of interest outgo.

Higher government borrowing also drains liquidity from the market, which in turn would push up borrowing costs for the private sector as well.

The government, however, is optimistic over bridging the revenue gap as net tax revenue in October 2013 has grown by over 22 per cent year-on-year.

Corporate tax collection grew 42 per cent in October this year.

Also, with some buoyancy in industrial activity and rise in consumption levels, mostly in rural areas, the government hopes to collect more taxes in the coming months.

The government, however, will have to resort to austerity measures to avert a further spike in fiscal deficit.