The Centre's fiscal deficit is estimated to be 6.8 per cent of GDP in 2009-10 against the low of 2.5 per cent projected for the previous fiscal a year ago, as expenditure is expected at over Rs 10 lakh crore and tax collection can take a hit due to stimulus packages.
Expressing concern at the rising fiscal deficit, Finance Minister Pranab Mukherjee said in his Budget speech today that the government will come back to the path of fiscal consolidation at the earliest.
"I intend to...return to the FRBM target for fiscal deficit at the earliest and as soon as the negative effects of the global crisis on the Indian economy have been overcome," he said.
The fiscal deficit was originally estimated at 2.5 per cent of GDP for 2008-09 but widened to 6.2 per cent after the government cut excise duty rates by 6 per cent and service tax by 2 per cent and increased planned outlay to spur the economy, slowing due to the global financial crisis.
For the current fiscal, the government retained the tax cuts but increased plan expenditure, particularly for the infrastructure sector, by 34 per cent year-on-year and non-plan outlay by 37 per cent due to a higher interest burden on account of more market borrowing.
A further rising fiscal deficit will necessitate more market borrowing and again increase the interest burden, which will become a cycle.