Data Talk India: India’s fiscal deficit has already reached 92.3% of the targeted budget in the first nine months of the current fiscal year ending in March 2012 (FY2012). As of December 2011, the amount of fiscal deficit has reached INR 3.81 trillion, an increase of 122% from the same period last year. The fiscal deficit in December 2010 was only INR 1.71 trillion or 44.9% of the budgeted target of the last fiscal year.
India’s Government Revenue and Expenditure
Chart provided by: CEIC
The alarming rise in expenditures and fall in revenues were the result of higher spending on oil subsidies and other social spending programs, as well as lower tax collections due to the slowed economy. Government expenditures amounted to INR 8.96 trillion during the April to December 2011 period, 71.3% of the FY2012 budget. Meanwhile, revenue is also falling short of the target. During the first nine months of FY2012, the Indian government only earned INR 4.99 trillion from revenue receipts, 61% of the year’s budget. This amount includes INR 4.2 trillion of taxes collected, which was merely 63.3% of targeted tax revenues. In other words, the tax revenues are likely to miss the target by INR 2.44 trillion for FY2012.
The gross fiscal deficit for FY2012 is expected to overshoot the budget estimate of 4.6% of GDP substantially. As such, the government plans to borrow beyond the target level. In fact, India’s fiscal deficit has remained elevated since the 2008-2009 fiscal year, and the government has relied on public borrowing to fill the fiscal gap. However, borrowings exceeding target could lead to increasing lending rates, hence potentially crowding out private sector borrowing and subduing the overall demand. In the upcoming budget for 2012-2013, the Finance Ministry plans to focus on fiscal consolidation, aiming to minimize deficits while putting a cap on additional debts. According to the Reserve Bank of India (RBI), these measures are critical in order for the central bank to cut rates without aggravating inflation.
By Chan Yee Lui in Malaysia – CEIC Analyst