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Government deficits mount - Views on News from Equitymaster
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  • Nov 4, 2008

    Government deficits mount

    Revenue deficit escalates
    The government's finances have all gone haywire. As per a leading business daily, as at the end of September 2008, the revenue deficit was at an eye-popping 142% of the entire year's projection while the fiscal deficit stood at 77% of the budget estimate. What makes the scenario stark and gloomy is the fact that in the past five years never before had the revenue deficit in proportion to the budgeted figure been higher.

    The reasons for the same are manifold. Additional expenditure catering to the demands for grants, increased recourse to the floatation of oil and fertiliser bonds, the latter especially causing off-budget liabilities to bloat are expected to put considerable strain on the government's finances.

    While receipts in the form of tax collections have been buoyant, they have not been able to outdo expenditure which has also soared. The worrisome aspect is that the expenditure has largely been skewed towards revenue and capital expenditure has taken a backseat. To put things into perspective while revenue expenditure accounted for nearly half of the budgeted figure for the entire year, the capital spending at 28% paled in comparison. This does not bode well for an economy where bad infrastructure has choked the potential of the country to log in strong growth in GDP.

    Europe is in a recession
    While Europe's economy being shrouded in bleakness is hardly surprising, the European Commission put a number to it by stating that the region's economy probably entered a recession this year and will barely grow in 2009. Amidst such a desolate landscape, European central bankers and politicians are on their toes literally burning the midnight oil in a desperate effort to pull the region from the slump.

    According to a report published by the Commission and reported on Bloomberg, economic growth in the Euro zone is likely to slump to 0.1% the next year and has revised its forecast downwards for this year to 1.2% from 1.5% in the early part of the year. Growth in 2010 is expected to be a wee bit better than 2009 at 0.9%. While the financial crisis has wreaked havoc in the region, record high oil prices and the Euro's strength at the start of the year were also instrumental in retarding growth.

    While the good news for the region is the fact that lower crude prices will cool off inflation, unemployment rate is expected to soar to 8.4% next year as against 7.6% this year. Just like its peers around the world, the European Central Bank is set to cut its benchmark rate for the second time in less than a month. The scenario, however, for the next one year atleast does not appear too enthusing.

    Scouting for land in West Bengal
    The state of West Bengal continues to make headlines. While it became infamous for its hostility towards Tata Motors' Nano project, the same does not seem to have detracted some big names to set up shop there. Case in point is ArcelorMittal.

    The world's largest steel producer has approached the West Bengal government for land in Rajarhat for setting up an office there. In fact, the Chief Minister has stated that biggies such as Airtel and ICICI Bank have expressed keenness for land in Rajarhat in the state. However, given that housing is a major problem in the state, the government was taking steps to establish satellite townships.



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