Fiscal deficit hits 16% of full year's limit in April

[B. Karthick]

The fiscal deficit for the first month of the current financial year
has shot up to Rs 54,100 crore or 16.3% of the projected deficit for
the entire year due to accelerated public spending and a sharp drop in
revenue collection, data released by the Controller General of
Accounts on Tuesday shows.

Fiscal deficit—excess of government expenditure over receipts less
borrowings—is a measure of amount the government needs to borrow to
meet its expenditure. Large government borrowings can cause interest
rates to go up sharply.

However, bond market dealers, who watch the revenue figures closely as
they provide a picture of the government’s financial health, shrugged
off the deficit figures.

“The market has already factored in an upwardly revision of borrowing
targets. We are waiting to see the quantum of the upward revision.
Although there is enough liquidity in the system, if the borrowing
target is upwardly revised by more than Rs 50,000 crore the yields
will see an upward spike,” said IndusInd Bank head (global markets
group) Moses Harding.

The government has, in the interim budget, indicated a record Rs 3.62
lakh crore of gross borrowings in the year to March 31. This is higher
than the Rs 3.06 lakh crore it borrowed a year earlier. In the current
fiscal, it has already borrowed in excess of Rs 18,000 crore above its
scheduled borrowing till June 26.

Primary dealers in the bond market pointed out that the fiscal gap may
narrow in the coming months with tax collection picking up due to a
revival in the economy and the government managing to raise money
through disinvestment and auction of spectrum for 3G services.

Government spending in April almost doubled from the same period last
year even as net tax receipts fell by 32% on a year-on-year basis.
However, net tax receipts have started showing signs of revival with
May showing an increase of more than 10%. Government expenditure is
also expected to move up from the levels suggested in the interim
budget as the forthcoming budget is likely to step up public spending.