Fiscal prudence can wait for now

The governments fiscal responsibility and budgetary management FRBM targets may have to wait for more than a year. Finance minister Pranab Mukherjee made it clear that by the end of 2008-09,the Indian economy would end up with a fiscal deficit of 6 per cent against an estimate of 2.5 per cent. Furthermore,with the coming year expected to be difficult,enhanced public expenditure may have to continue as a counter cyclical measure and fiscal deficit may be around 5.5 per cent in 2009-10.

The government has sacrificed its fiscal deficit targets on account of the exceptional circumstances that we are in. It is only after 2010-11 that India may be in a position to tackle fiscal discipline, chief economic advisor to the finance ministry Arvind Virmani said at a press briefing after the budget was tabled in Parliament on Monday. The FRBM target is to eliminate the revenue deficit and contain the fiscal deficit to below 3 per cent of the GDP.

However,achieving these targets may not come easy. The government estimates a revenue deficit of 4.4 per cent for 2009-2010,which may not be easy to reduce to zero. In all likelihood India may return to its commitment to fiscal discipline only by 2011. While the government has sacrificed fiscal discipline,its expenditure for 2008-09 does not highlight significant counter cyclical spending. Ironical to all claims,the governments plan expenditure will go up a marginal 0.77 per cent from Rs 2,82,957 crore in 2008-09 to Rs 2,85,149 crore in 2009-2010.