Fiscal deficit goal of 4.6% not easy to meet: Economists

The finance minister stunned markets with a better-than-expected 4.6% fiscal deficit targets. The announcement was greeted with widespread disbelief and yet stock markets rallied 600 points the next day. CNBC-TV18’s Gopika Gopakumar and Vidhi Godiawala polled a cross section of analysts to find that foreign investors are more willing to believe and laud the finance minister than are his India critics. Here are the results of their poll

According to CNBC-TV18 poll, 90% of the economists feel the deficit will be above 5% and only 10% share the government's confidence of 4.6%.

Haseeb Drabu, Economist at ECR said, “On the face of it, I don't think the targets would be met. My own sense is that the numbers don't look very robust. I don't want to quibble about the extent of subsidies and other things but largely the basic thing is that the oil economy seems to have been left out completely.”

Economists argue that the government has grossly underprovided for subsidies for next year.

According to the government's expenditure budget, total subsidies for FY12 has been pegged at Rs 1.34 lakh crore, much lower than the revised estimates for the current year at Rs 1.54 lakh crore and  the budgeted expense of Rs 1.08 lakh crore.

Siddhartha Sanyal, Chief India Economist, Barclays Capital said, “If you actually see the non-plan expenditure, it’s an extremely subdued number. 3% kind of growth compared to the 15% kind of CAGR on a long term basis looks really unrealistic, especially when you have so many wild cards, which can actually surprise you.

The government, however, clarifies that it’s not the case.

According to R Gopalan, Economic Affairs Secretary, the biggest criticism is on the petroleum subsidy, where the government has provided only for Rs 23,640 crore for the next year as against the Rs 38,386 crore the government has provided this year.

“Now the point remains that for the first time in the last few years we have provided for petroleum subsidy in the Budgeted Estimate (BE), we have always provided nil in the BE and went on to add in the revised estimate. Why? There is a reason for it. The reason is that the under activities are computed at the end and then they get rolled over to the next year,” added Gopalan.

However, foreign economists don't seem worried about the lower fiscal deficit number.

Director, Asia Sovereign Ratings, Fitch Ratings, said “The deficit goal is not going to be that easy to meet. It is a challenge. I still think it's achievable and still within a realistic range. Obviously, there are two caveats we have got to watch out for. One is the growth target. They have set a high growth target and that's helpful for revenues. At the same time they are aiming to cap expenditures, which can be tough, given that India carries a huge subsidy bill, particularly, on fuel and food which can be volatile.

Gerard Lyons, Chief Economist & Group Head of Global Research said, “In terms of 4.6% budget deficit, here in India, everyone seems to be skeptical about that figure. The revenue side in terms of tax revenue has been very buoyant but to achieve that 4.6%, budget deficit requires growth being strong and requires government spending more under control than it has been in recent years so it is possible that it can be achieved but its not guaranteed.”

As Lyons says, growth can paper over a lot of the fiscal gap, but for the moment, it appears that the west Asian crisis and the surge in crude can both drag growth and widen the deficit.