The continuing inflation-growth tussle is unlikely to disturb the fiscal deficit target for the government, as its plans to control expenditure in the current financial year is set to remain on course.
A senior finance ministry official told Business Standard that the government was comfortably cruising on the path of curtailing expenditure to keep fiscal deficit within 4.6 per cent of the gross domestic product (GDP) as proposed in the Budget.
"From April onwards, we have sensitised the ministries to live within the Budget. We are watching it constantly and will tighten it over coming months," he added.
The official pointed out that the first batch of supplementary demand for grants established this commitment. "We have presented Rs 9,000-crore (Rs 90 billion) supplementary demand only and this would be taken care of by the savings in other ministries.
He stressed that the whole calculation of restricting the fiscal deficit to 4.6 per cent largely hinged on expenditure control and there was no question of any slippage on that front.
The government has consciously reduced the growth of expenditure in the last two financial years. "Last year, it was 15 per cent of GDP. This year, we are bringing it down to 14 per cent of GDP. The government is trying to constrict expenditure by about one
per cent of GDP every year," said the official.
The government, in the 2011-12 Budget, has made its calculation on the basis of projected nominal GDP growth of 14 per cent - 9 per cent real GDP growth with 5 per cent inflation.
The official said that in actual, the nominal GDP growth could be around 15.5 per cent - 7.5 per cent real growth and 8 per cent inflation. "A very conservative figure would be 16 per cent nominal GDP growth. The current situation suggests that it will not be difficult to keep the fiscal deficit within the target," he added.
The official pointed out that despite a reduction in duty on petroleum products, tax collections between April and July indicate that growth in indirect tax realisation had been good with a 28 per cent rise.
Similarly, 26 per cent growth in direct tax collections during the period also suggested that revenue realisation was on course, he said.
"Advance income-tax collection, due on September 15, will be a good indicator on the revenue front. I don't find any reason for panicking here," said the official.
The fiscal deficit in 2008-09 was six per cent of GDP. It rose of 6.4 per cent in 2009-10. The increase in fiscal deficit in these two years was mainly on account of counter cyclical measures taken by the government to overcome the effects of the global slowdown.
In 2010-11, the fiscal deficit came down to 4.7 per cent. In 2001-12, up to June, it was 1.8 per cent of GDP.