The government is unlikely to meet the 3.1 per cent fiscal deficit target set for this fiscal due to excess borrowings to meet contingencies, Planning Commission deputy chairman Montek Singh Ahluwalia said here Thursday.

"Fiscal deficit this year is likely to be more than the budgeted 3.1 per cent (Rs.1.3 trillion) due to over-exposure in terms of borrowings. In view of the exceptional circumstances and global factors, the government had to also raise oil bonds and fertiliser bonds, which are considered off-budget," Ahluwalia told reporters on the sidelines of a function.

As per the Fiscal Responsibility and Budget Management (FRBM) Act 2003, the fiscal deficit is required to be reduced to 3 per cent of the GDP (gross domestic product) by 2008-09 - at the rate of 0.3 per cent of GDP every year from 2004-05.

"The FRBM Act is effective and adoptable under normal circumstances. To make it a rigid prescription will be a complete misreading of the Act," Ahluwalia said.

Fiscal deficit is a measure of borrowings by the government in a financial year. In budgetary arithmetic, fiscal deficit is the total expenditure minus the sum of revenue receipts, recoveries of loans and other receipts such as proceeds from disinvestment.

The government raises resources to fund its expenditure through tax collections and borrowings from the Reserve Bank of India (RBI), from the public by floating bonds, financial institutions, banks and foreign institutions.

 

"Even in developed countries (the US and Europe), fiscal deficits are set to go off targets this year following re-capitalisation of banks and infusion of billions of dollars and euros in their troubled financial systems," Ahluwalia asserted.

In the wake of dramatic rise in commodity and fuel prices, followed by global slowdown and financial meltdown, economies of the developing and developed countries are facing their worst-ever crisis in recent memory.

"In India, however, we have been taking proactive fiscal and monetary measures to minimise the impact of these global factors on our resilient economy. The centre has also insulated the states to a large extent by not passing off the burden of steep rise in fuel and fertiliser subsidies," Ahluwalia said.

Ahluwalia was in the tech city to receive a report on "technology enabled transformation of power distribution", prepared by IT bellwether Infosys Technologies in association with the Centre for Study of Science, Technology and Policy (CSTEP), Bangalore, a non-profit research organisation.

If you enjoyed this post, make sure you subscribe to my regular Email Updates!

Related Posts : 30-10-2008, GDP, Indian Market, MARKET OUTLOOK