Most of India's budget targets remain far from completion in the first nine months of FY12. But, in one category, the government is all set to break the barrier. The govt. has already run up a fiscal deficit of 92.3% of its budget estimates in 9mFY12. This is mainly on the back of lackluster tax collections. But, what is worrying is that these figures indicate that it is unlikely that India will be able to meet its fiscal deficit target of 4.6% for FY12.
Recent data shows that the fiscal deficit during the 9 month period was Rs 3.8 trillion. This is over 90% of the Rs 4.1 trillion target. In comparison, the deficit was 44.9% of the budgeted target at the same time last year. Plus last year the Center saw a huge windfall profit on the 3G spectrum sales. This year, prospects look weak. The govt. has managed to rake in Rs 5.2 trillion in revenues in 9mFY12, or only 61% of the year's target. Now with only three months remaining, the revenue target of Rs 8.4 trillion is unlikely to be met. Net tax collections stood at Rs 4.2 trillion or 63.3% of the budgeted target. Total expenditure was at Rs 9 trillion during the Apr-Dec period.
The Reserve Bank of India (RBI) also spoke about the government's unhealthy fiscal situation in its third quarter monetary policy review. India's fiscal deficit has remained elevated since 2008-09. Plus slippages in the deficit have also been adding to inflationary pressures. The announcement of an increase in govt. borrowings indicates that the deficit for FY12 will surely overshoot estimates.
The finance ministry plans to focus on 'fiscal consolidation' in its upcoming budget. This term basically describes the creation of strategies aimed at minimizing deficits while not adding more debt. According to the RBI, strong signs of these measures are critical for the central bank to cut rates without aggravating inflation. If the government does not pay heed to this, the RBI will have no choice but to keep rates at elevated levels. The latest Union Budget needs to address this and implement sustainable changes. Else growth objectives or inflation targets have no meaning. And we may have to continue to deal with high interest rates and rising EMIs for a long time.