At a time when the country's fiscal deficit has burgeoned to Rs 3.07 lakh crore or 74.4 per cent of the Budget estimate in the first seven months of this financial year, Mr Saumitra Chaudhuri, Member, Planning Commission, on Saturday highlighted the need for ‘a restrained fiscal deficit'.
“We need ‘a more restrained fiscal deficit',” Mr Chaudhuri said while speaking at an interactive session organised by the Confederation of Indian Industry here today.
Fiscal deficit is the gap between total revenue and total expenditure and is an indication of the total borrowings required by the Government. In its pre-Budget survey, the Government had projected the fiscal deficit to fall to 4.6 per cent of the Gross Domestic Product (GDP), or Rs 4.12 lakh crore, in the current fiscal, against 4.7 per cent last year.
The latest issue of ‘India Macro Flash' report by the global finance major Citigroup, however, indicates that the country's fiscal deficit could widen to 5.8 per cent of the GDP in the current fiscal on account of lower tax mop-up, lower divestment proceeds and the spiralling under-recoveries of oil companies.
Current account deficit
Talking about the current account deficit, Mr Chaudhuri said, “Our current account deficit has become much too enlarged on account of burgeoning imports and sluggish growth. Therefore, financing current account deficit is becoming a challenge.”
External funding - which was not a problem even a few months ago – has suddenly become scarce now. “Euro Zone crisis in my view is not likely to be solved satisfactorily anytime soon. European banks will try to compress their balance sheets to efficiently make space for new capital,” he said.
This might eventually lead to drying of dollar liquidity. “One can expect that the central bank (Reserve Bank of India) will try and offset that, but to what extent, that needs to be seen,” he said.
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