New Delhi: The finance ministry on Friday sought Parliament’s approval for a net additional expenditure of Rs 56,848.46 crore, which will take the fiscal deficit way past the budgeted 4.6% of gross domestic product (GDP).
Submitting the second supplementary demand for grants, the ministry projected a gross additional expenditure of Rs 63,180.24 crore. Out of that, the government plans to meet Rs 6,330.8 crore of expenditure through savings on the money already allocated to various departments.
The additional expenditure is a sign of pressure on government finances and indicates that a revenue shortfall is for real, said D.K. Joshi, chief economist at credit rating agency Crisil Ltd.
“As there is no revenue buoyancy, the government has to meet the additional expenditure through higher market borrowing,” he said. Concerns of additional government borrowing pushed up yields in the government securities market. The yield on the 10-year benchmark paper rose to 8.84% in intra-day trading before ending the day at 8.81%, higher than Thursday’s close of 8.79%.
In the first supplementary demand for grants in August, the government had projected an additional gross expenditure of Rs 34,724 crore, entailing a net cash outgo of Rs 9,016.06 crore.
In September, the government announced that it will borrow an additional Rs 52,872 crore from the market in the second half of 2011-12, raising its borrowing programme for the fiscal to Rs 4.7 trillion.
The government had budgeted to borrow Rs 4.17 trillion for the current fiscal. The government, which has already borrowed Rs 2.5 trillion in the first half of the fiscal, will now borrow Rs 2.2 trillion in the second half. Crisil has projected the fiscal deficit at 5.2% of GDP, which may need to be revised upwards, Joshi said.
M. Govinda Rao, director at the National Institute of Public Finance and Policy, said he expects the fiscal deficit at 5.5% of GDP for the current fiscal.
On Tuesday, finance minister Pranab Mukherjee said the government will find it hard to meet the 4.6% target in the year to March because any belt-tightening may hit jobs and slow economic growth even further. The economy is expected to grow 7.6% this year, down from 8.5% in the last fiscal.
“This is a difficult target, given the deterioration in the global economy and its impact on India over the last three-four months,” Mukherjee told the Lok Sabha. “We have to be careful not to overdo ourselves in reaching this target, since that can have an excessive slowing-down impact on growth.”
PTI contributed to this story.