India's fiscal deficit more than projected

New Delhi: Reserve Bank of India Governor Y V Reddy confirmed on Monday what the Government has tried to be optimistic about: India's fiscal deficit numbers are understated, said the RBI chief.

Reddy's statement comes at a time when the Government has just widened the ambit of the farm debt waiver package by about 10 per cent, or Rs 6,000 crore.

The country is also facing a severe pressure on the oil front, with crude staying above the $130 per barrel mark.

“The fiscal situation has improved but there are some underlying pressures which are not reflected in the numbers. Of course, it’s more for the states than the Centre,” Reddy said.

Reddy also noted that the pressure on the fiscal situation also comes from the fact that as much as one half of domestic savings in the country go towards servicing the fiscal deficit.

India's fiscal deficit to GDP ratio is also one of the highest in the world, which puts the economy at a risk.

Reddy said that the Government's claim of lower fiscal deficit in FY 08-09 could well be because of lower public expenditure.

“Fiscal deficit of the Government is mandated to be down from 3.1 to 2.5 per cent, though that's an improvement; it’s really because of lower public investment,” he explained.

With oil marketing companies reeling under massive under-recoveries, there are fears that the Government has to issue more bonds than it did in FY 07-08.This coupled with the impact of the 6th pay commission recommendations could mean that the fiscal deficit figures of the Government could be much more than the 3.1per cent announced in the last Budget.

Many economists fear that the Government will overshoot its borrowing programme as a result of these populist announcements, which will further widen the fiscal gap.

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