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Fiscal deficit worries resurface - Views on News from Equitymaster
 
 
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  • Sep 2, 1999

    Fiscal deficit worries resurface

    According to newspaper reports, India's fiscal deficit (including all small savings) at the end of July has ballooned by over 28% as compared to the same period in 1998-99. The reason for the jump in deficit is that while expenditure grew by 16%, the net revenue receipts grew by a meager 1%. The government has projected a fiscal deficit of 4% in FY2000 (5.2% on the basis of old accounting method).

    However, as per government estimates, the picture is much better. This is so because, from this year onwards, small savings, which were earlier treated as capital receipts, will now be netted out. Under the new scheme according to the RBI Annual Report (1998 99):

    The Union Budget for FY 2000 has proposed to change the accounting system so that small savings collections would be credited to 'National Small savings Fund' in the Public Account. All withdrawals and disbursals would be made out of the accumulation of the fund. All investments in Central Government securities out of the fund would form a part of the Central Government's internal debt. Due to this change, non-plan expenditure of the Centre is budgeted to be lower by Rs 250 bn in FY2000, which is reflected on the fiscal deficit.

    The deteriorating fiscal position is a cause for concern for all. This is so because, if the situation fails to improve, the government would have to continue to borrow funds from the market. In all probability, the government will exceed its borrowing target as in the previous year (34% over the Revised Estimates). This could lead to a hardening of interest rates in the markets and thus adversely affect investment and consumption activity. Moreover, the situation is of concern as it implies that taxes have failed to register growth. This means that corporate profitability is yet to pick up, again denting the prospects of an economic recovery.

     

     

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