Expect in Budget: 'Fiscal deficit likely to fall on spending cuts'


The government is likely to use a 5.5 per cent growth rate estimate for the economy and a massively strict monitoring of expenditure to show it has improved upon the 5.3 per cent fiscal deficit target for the economy in 2012-13 when it presents the Budget this week. This will be for the first time since 2008-09 that the fiscal deficit calculated by the finance ministry will dip close to 5 per cent.

While the ministry had claimed in 2010-11 it was close to 5 per cent, audited figures by the CAG showed the percentage was worse. Analysts too are finally convinced Budget 2013-14 will show some impressive numbers for fiscal compression as concerns over the Centre's financial health have begun to abate. The estimate for 2013-14 is expected to be even better at 4.8 per cent.

"With the kind of drastic expenditure cuts in government Budget and a likelihood of deferring subsidy payments to the next fiscal, we estimate the fiscal deficit at 5.2 per cent of the GDP in the current fiscal," said Abheek Barua, chief economist, HDFC Bank, adding that the fiscal deficit target may be kept at 4.7 per cent in 2013-14 as an additional incentive for investors.

In his revised roadmap for fiscal consolidation, finance minister P Chidambaram had pegged the fiscal deficit at 5.3 per cent of the GDP in 2012-13, partially higher than the Budget estimate of 5.1 per cent.

For 2013-14, he had kept a target of 4.8 per cent as the fiscal deficit.

"We expect fiscal deficit to be a little lower than the estimated 5.3 per cent largely due to the significant expenditure cuts done by the government. It could be in the range of 5.2 per cent to 5.1 per cent," said Saugata Bhattacharya, chief economist at Axis Bank.

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