India FY08 fiscal gap may fall to 3.2% on higher GDP base

[K.Karthik Raja]

India FY08 fiscal gap may fall to 3.2% on higher GDP base

NEW DELHI - India's fiscal deficit for 2007-08 (Apr-Mar) is likely
to fall to 3.2% of gross domestic product, just on the basis of higher-
than-expected national income, even if the absolute fiscal gap remains
on target at 1.509 trln rupees.
The Budget for 2007-08 had projected a fiscal deficit of 3.3%,
assuming a nominal GDP at market prices of 46.34 trln rupees.
However, according to the Central Statistical Organisation, the
nominal GDP at market prices in 2007-08 is likely to grow 13.2% to
46.94 trln rupees.
There could be more good news in store, as fiscal deficit in
absolute
terms could also be lower for the current year.
India's fiscal deficit in the first nine months of the current
financial
year was 775.78 bln rupees, down 18.2% on year.
In the last three years, the average fiscal deficit during Jan-Mar
was
412.30 bln rupees. Assuming the trend continues, fiscal deficit could
end at 1.188 trln rupees for the current financial year.
Even if the deficit for the last quarter is in line with 479.39
bln rupees
in Jan-Mar last year, fiscal gap for the full year will still be 1.255
trln
rupees.
Analysts, however, expect the government to step up spending in
the last quarter, as different ministries exhaust their annual
budgets.
"The fiscal deficit has been low so far but don't be too surprised
if
March numbers shoot up," said Shubhada Rao, chief economist, YES Bank.
"So far, the government has held on to spending but spending in
March typically shoots up. Yet, fiscal deficit (in absolute numbers)
may be slightly lower than the budget target," she said.
Abheek Barua, chief economist, HDFC Bank, concurs that spending
could pick up in the current quarter but believes there could be some
contraction in fiscal deficit for the full year.
"There has been some postponement in spending and I think spending
could go up in the last three months," Barua said. "However, fiscal
deficit for the full year could still settle lower at around 1.450
trln rupees," he said.
According to the Fiscal Responsibility and Budget Management Act,
the government is committed to cut fiscal deficit to 3.0% of GDP by
2008-09.
The following table gives different levels of fiscal deficit, with
the
base GDP at 46.94 trln rupees:
Fiscal deficit Fiscal deficit
(in trln rupees) (in %)
1.188 2.5
1.255 2.7
1.400 3.0
1.450 3.1
1.509 3.2