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PC looks set to achieve 5.3% fiscal deficit target

The Economic Survey for the current financial year (1 April 2012- 31 March 2013),  tabled by Finance Minister P Chidambaram in Parliament on Wednesday, states that the Union government is likely to meet its revised fiscal deficit target of 5.3 per cent of gross domestic product (GDP). The survey, released on the eve of the Union Budget presentation, however, added that the Centre will miss its total revenue target by a considerable margin.

Explaining this unusual phenomenon of the fiscal deficit target being met despite the huge revenue shortfall, Chief Economic Advisor to the Government Raghuram G Rajan, the lead author of the Economic Survey, told journalists that ‘impressive’ spending cuts by the government in sectors such as social welfare, defence, road projects and infrastructure have turned what seemed impossible a few months ago into a distinct possibility.

The former International Monetary Fund (IMF) Chief Economist had previously said that 5.3 per cent was a ‘tough’ deficit target for this fiscal. But Finance Minister P Chidambaram, since returning to this Ministry for his third stint in August, has cut spending sharply and now looks set to achieve a fiscal deficit of 5.3% of GDP.

However, even this remains the widest spending gap among the BRICS group of major emerging nations, which includes Brazil, Russia, China and South Africa. Chidambaram had pegged this deficit at 5.1 per cent of GDP in his Union Budget for 2012-13 and later revised it to 5.3 per cent in view of the rising expenditure and subdued revenue collections.

Now, getting to the bad news, gross tax revenues in the first nine months of the current fiscal (April-December 2012) grew by 15 per cent to Rs 6.81 lakh crore. This is 63.2 per cent short of the growth estimated in the Union Budget and lower than the last five-year average of 69 per cent.

The poor tax collection is the result of weak economic growth and corporate performance this fiscal. The growth rate is expected to slip to a decade’s low of 5 per cent from 6.2 per cent in 2011-12 and 9.3 per cent in 2010-11. Last year’s Economic Survey had projected a 7.6 per cent growth rate for 2012-13.

In order to meet the challenges of the economy, Rajan prescribed shifting national spending from consumption to investment, removing bottlenecks to investment, growth and job creation, and making efforts to reduce cost of funds.

‘These are difficult times but India has navigated such times before and with good policies, it will come through stronger,’ predicted the perennial optimist,

Now, let’s sees what Finance Minister P Chidambaram unveils today in what many observers, economists. corporate captains, and, yes, even many common men expect to be the most austere budget in years.
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