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How govt plans to contain widening fiscal deficit

Last updated on: July 5, 2012 11:02 IST

How govt plans to contain widening fiscal deficit

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BS Reporter in New Delhi

With the Centre's fiscal deficit exceeding a quarter of the Budget estimates for the full financial year 2012-13 in the first two months itself, the finance ministry is readying a fiscal deficit reduction plan to avoid a repeat of the fiscal mess that affected the economy last year.

As part of the plan, government departments may have to surrender the unspent project-linked component of the Rs 70,000-crore (Rs 700-billion) additional gross Budgetary support at the end of the financial year.

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Photographs: Reuters
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The ministry is also expecting a reduction of about Rs 9,000 crore (Rs 90 billion) in its scheduled market borrowings of Rs 3.7 lakh crore (Rs 3.7 trillion) during April-September 2012 on the assumption that the Centre's fiscal deficit would be lower than Budget estimates of 5.1 per cent of gross domestic product in 2012-13.

The government borrows from the market to meet the gap between its expenditure and revenue.

A cut in market borrowings suggests curtailment of expenditure or higher-than-projected revenues.

Total Budget support for the Central Plan is pegged at Rs 3.9 lakh crore in 2012-13, compared with Rs 3.2 lakh crore (Rs 3.2 trillion) allocated in 2011-12, as per Revised Estimates -- a rise of about 22 per cent.

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Of the total increase of about Rs 70,000 crore (Rs 700 billion) in the Central Plan in 2012-13, about Rs 50,000 crore (Rs 500 billion) is linked to various government schemes and projects. 

Though the allocation was made ministry-wise and not project-wise, an understanding had been reached between the Planning Commission and the finance ministry that the government departments should be asked to return the money, they were not able to spend on the projects, said an official.

This would provide a leeway to the government to bring down its market borrowings, 'possibly by about Rs 20,000 crore or Rs 200 billion' by the end of the financial year, and make more space for private-sector investment.

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The government has estimated its gross-market borrowings in 2012-13 to reach Rs 5.69 lakh crore (Rs 5.69 trillion).

For 2011-12, it had projected its gross borrowings at Rs 4.17 lakh crore (Rs 4.17 trillion).
However, the huge subsidy burden widened the fiscal deficit to 5.9 per cent, forcing it to borrow Rs 5.1 lakh crore (Rs 5.1 trillion). 

Officials are hopeful that with these expenditure control measures, besides a possible partial decontrol of diesel prices and lower crude oil prices, fiscal deficit would be lower than the Budget estimate of 5.1 per cent of GDP in 2012-13, even though the deficit touched 27 per cent of the estimated figure of Rs 5.13 lakh crore (Rs 5.13 trillion) in the first two months of the current financial year.

The Central Plan is distributed across various schemes in sectors such as agriculture, rural development, energy, communications, environment and transport. 

It is the biggest expenditure item in the Budget, comprising about 26 per cent of the total expenditure of Rs 14.9 lakh crore (Rs 14.9 trillion) in 2012-13.


Photographs: Reuters
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