Fiscal deficit to spike on tax: MStanley

Fiscal deficit is likely to again miss budgeted target and will be around 5.6% of GDP.

Fiscal deficit is likely to again miss the budgeted target and will be around 5.6 per cent of GDP against the projected 5.1 percent in the budget,due to lower than expected tax collections,a Morgan Stanley Research report said today.

“We believe slower indirect tax collection growth combined with continued high growth in government spending will push fiscal deficit higher than the budget estimate. We expect the Centre’s fiscal deficit to be 5.6 per cent of GDP in FY13 against the budget estimate of 5.1 per cent,” the report said.

However,the report also said the consolidated national fiscal deficit,which includes off-budget expenditures,to improve to be 8.5 per cent against 9 per cent last fiscal.

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According to the report,the fiscal deficit during the first quarter grew by 17.1 per cent against the budgeted estimate of 0.8 per cent for FY13.

Giving the rationale behind a possible overshoot of the target,the report cited rising government expenditure as one of the reasons.

As per the report,expenditure growth accelerated to 19.3 percent y-o-y in April-June period against a budgeted estimate of 14.8 percent y-o-y for the current fiscal.

Similarly,revenue expenditure grew by 20.3 per cent as of now compared to budgeted estimate of 12.7 per cent.

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Also,capital expenditure grew by 12.5 per cent compared to a targeted 30 per cent.

“Expenditure by the department of fertilisers and the petroleum and natural gas ministry saw large y-o-y growth in the April-June period,” the report said.

The report also said there was deceleration in growth in non-tax revenue collection. Total non-tax revenue growth decelerated to 16.3 per cent in April-June period against a budgeted estimate of 32.4 per cent growth in FY13.

However,tax revenue growth clocked a 25 per cent growth in April-June period against a budgeted estimate of 21 per cent for the current financial year.

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“We expect that weakening economic activity will keep revenues from corporate income tax and indirect tax (Excise and Customs) weak in FY13,” it said.

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