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Fiscal deficit is an economic phenomenon, where the Government's total expenditure surpasses the revenue generated .

It is the difference between the government's total receipts (excluding borrowing) and total expenditure. Fiscal deficit gives the signal to the government about the total borrowing requirements from all sources. Components of fiscal deficit The primary component of fiscal deficit includes revenue deficit and capital expenditure. Revenue deficit: It is an economic phenomenon, where the net amount received fails to meet the predicted net amount to be received. Capital expenditure: It is the fund used by an establishment to produce physical assets like property, equipments or industrial buildings. Capital expenditure is made by the establishment to consistently maintain the operational activities. In India, the fiscal deficit is financed by obtaining funds from Reserve Bank of India, called deficit financing. The fiscal deficit is also financed by obtaining funds from the money market (primarily from banks). Arguments: Fiscal deficit lead to inflation According to the view of renowned economist John Maynard Keynes, fiscal deficits facilitates nations to escape from economic recession. From another point of view, it is believed that government need to avoid deficits to maintain a balanced budget policy. In order to relate high fiscal deficit to inflation, some economists believe that the portion of fiscal deficit, which is financed by obtaining funds from the Reserve Bank of India, directs to rise in the money stock and a higher money stock eventually heads towards inflation.

.Expert recommendation Financial advisors recommend that the Government should not promote disinvestment to reduce fiscal deficits. Government's investments in these sectors will be reduced. Impact Fiscal deficit reduction has an impact over the agricultural sector and social sector. Fiscal deficit can be reduced by bringing up revenues or by lowering expenditure.

the 19 percent increase.4 percent of GDP and to that extent inflate the fiscal deficit.9 percent. the finance minister has budgeted for a 19 percent increase in tax revenues because he expects the economy to grow at 7. On that basis. mainly corporation tax. Currently. the fiscal deficit overshot the target by a huge margin. and by the government which let expenditure shoot up under political pressures. Not to be discouraged by the fall in tax revenue in 2011-12.6 percent. mainly food. That was not enough and the finance minister had to have a go at the bulging subsidies. The political space for curbing subsidies is limited. a shortfall in tax revenues in 2012-13 is not unlikely.1 percent fiscal deficit that is planned. in unlikely to come. The budget was messed up by the RBI with its interest policy which brought down growth and therefore tax revenues. excluding additional taxation. Not all but those on petroleum products and fertilisers which are regressive and together account for about two-thirds of total subsidies.In the 2011-12 budget. therefore. The finance minister had planned for 4.6 percent in 2012-13. More precisely. subsidies are 2. would mop up 414 billion rupees. and with relentless inflation. appears presumptuous . The 5. The finance minister did try to bridge the gap with the increase in service tax and excise duties which. it turned out to be 5. The finance minister has therefore resolved that subsidies will be curbed next year. That put the budget in a strait jacket. The latter will be chopped down in 2012-13 to 2 percent of GDP. Even if it does. and two-thirds from the increase in subsidies. a third of the increase in fiscal deficit came from the fall in tax revenues. It looks like the finance minister has been deliberately optimistic. along with a concession in direct taxes. the chances of RBI cutting interest rates adequately to revive investment are low. The experience of 2011-12 is that a 1 percent increase in GDP generates 2 percent increase in tax revenues.

we believe the chances of achieving a deficit target of 3 percent for fiscals 2014 and 2015 seem remote." it said. divestment target and spectrum receipts and cutting subsidies will not be sufficient. "With the 2014 general elections. "We expect debt-to-GDP ratio to fall to 74.1% difficult to meet.8 trillion.3-. deficit is likely to remain high. and low on ambition".Fiscal deficit target of 5. adversely affecting recovery. On the expenditure front. from 74.5 per cent as the projected revenue increase and subsidy cuts may not materialise. Eskesen said fiscal slippages are likely to come from non-tax revenues and subsidy fronts. but lacks on the reform front that the market has been hoping for.1 percent fiscal deficit target will be tough. the slippage may stem from fuel subsidies. and targeted direct subsidy remains uncertain. Global rating agency Standard & Poor's also said the uncertainty regarding policy implementation will keep the deficit high next fiscal. "We see slippages on revenue and expenditure fronts. to 5.5 percent"." S&P said.7 percent in FY 2013.5 per cent of GDP. given the tepid growth in the country as well outside. say experts MUMBAI: Economists at rating agencies and fund houses have described the 5. The revenue numbers are dependent on growth sustaining and the markets holding up. The bottom line is "FY 2013 deficit being missed by over 40 bps. he added." said HSBC chief economist for India Leif Eskesen.3-5." Malkani said. though he described the Budget as "more realistic. as uncertainty surrounds the path to subsidy consolidation and to lowering the fiscal vulnerability to volatile commodity prices. will put some pressure on financial markets. It further said that the nominal GDP growth will exceed the ratio of government deficit to GDP next fiscal.5. DTC. the timing of the implementation of key reform measures such as GST. "We do expect some fiscal slippages relative to the Budget target. . with new market borrowing of Rs 4. But large public funding programmes.1 per cent fiscal deficittarget for the next fiscal as an uphill task considering the absence of a clear fiscal roadmap and the still uncertain global environment.9 percent in FY2012. "While the Finance Minister announced various fiscal reforms. Citi India economist Rohini Malkani said the Budget is safe economically as well as politically. They also said the deficit target will most likely overshoot by 20-40 bps to 5. Care Ratings managing director D R Dogra said achieving 5. Also. Increasing indirect taxes. with the final figure possibly slipping to around 5.

The government has proposed to borrow some Rs4.000 crore more than most prebudget expectations. which would lead to higher-than-estimated market borrowing in the next fiscal year. subsidized and taxed rightly so that these remain conducive to growth rather than jeopardizing the same.79 trillion from the market.36 trillion it is projected to borrow this fiscal year BSE’s index of banking stocks. . gross borrowing will be Rs5. more than the Rs4. priced.000 crore of redemptions slated for the next fiscal year. As a result.10. With Rs90. though one needs to see if they do work out at the end of the day.Crude oil basket has steadily risen since January 1999 from $20 to $125 a barrel or by 6. Petro products should be used.000 crore or by massive 22 times this fiscal increasing its role in our energy mix.7 trillion. he said. 2012 07:30 PM All deficits are self made and easy to contain. more than the drop in the overall market. Market experts worry that fiscal slippages are likely to continue and that the government could undershoot its aggressive revenue target. Opinions alok (gwalior) 18 Mar. Unreal fiscal deficit target hits bank scrips The government has proposed to borrow some Rs4. 27000 crore in FY 99 to about Rs. fell by almost 2% on Friday.36 trillion it is projected to borrow this fiscal year.25 times and we have gradually increased its consumption as evidenced by increase in oil import bill from Rs. How long it will go on? How long we will keep hurting poor Indian economy by high energy cost and all important oil and gas sector by very high under recoveries? Why we are not looking at free option of infinite solar in place of cooking water heating fuels and free electric traction in place of costliest motor fuels? Easily replaceable cooking fuels are being subsidized while irreplaceable petrol is being highly taxed. the Bankex. Yields will rise further when the borrowing programme commences in fiscal 2013. the Budget has not exactly put a leash on expenditure but has tried to rationalise subsidies on fertilizers and oil. which is about Rs.Moreover. 600.1% of gross domestic product (GDP) for 2012-13 was unrealistic. more than the Rs4. Only pleasing part of the story is recent increase in petro products export to 60 billion dollars a year from India.79 trillion from the market. This remains the greatest puzzle for me. as investors felt the Union budget’s fiscal deficit target of 5. bond yields inched up.

That will undoubtedly put pressure on yields. But overall. which is positive for small banks. Slow growth also means nonperforming assets will continue to haunt banks.Graphic by Sandeep Bhatnagar/Mint These redemptions are mostly in the first half of the fiscal year and so most of the borrowing might also happen in the first six months of 2012-13. The government has proposed to inject about Rs16. . And given rising crude prices and expectations of fiscal slippages. which. Besides.000 crore worth of capital into public sector banks. in turn. the budget further dampens the sentiment for the sector. the GDP growth forecast of 7.6% for the next fiscal year provides nothing to cheer about. will lead to a depreciation hit on banks’ investment portfolio. interest rate cuts might not happen to the extent the market expects.

Whatever be the case. Budget at ET: Budget 2012 | Union Budget | Live Union Budget Blog | Railway Budget | Budget News |Economic Survey of India Nimesh Shah.Budget 2012: Sector outlook tips from market experts The Union Budget 2012-13 evoked mixed reactions from stock analysts and market experts. however. Inc.997 crore. as in case of power sector but this pitch did not materialize as per the market expectations. Oil and Gas Prior to the Union budget." said D K Aggarwal. SMC Investments and Advisors. ICICI Prudential AMC. The need of the hour was bold decisions to tame the rising fiscal deficit. reduction in STT on delivery by 20% has added to the investors return potential for equity. not to mention that any worsening of the oil situation can further exacerbate the overall situation. While some felt that the budget was in line with what the market was expecting." said Bimal Gandhi. "The increase in service tax by 2% and an increase in excise duty were anticipated and have resulted in some fiscal respite. CMD. but such initiatives were missing in the budget. the oil companies were proposing 100% compensation for the underrecoveries in line with year 2008-09. but the government restrained from any such move in the budget presented." he said. the government is likely to increase the subsidy to Rs 60. chairman. others said it was a missed opportunity.974 crore for the next year from the earlier estimate of 49. The introduction of the Rajiv Gandhi Savings scheme is a clear positive for the equity market by way of increased long-term investor participation. we present here the sector outlook by some of market experts: Fertiliser The budget is likely to give a big boost to the fertiliser secort as "the budget has proposed a full exemption of customs duty on import duty on import of equipment for fertiliser plant for three years. The budget has only put additional burden on the already stretched fiscal deficit. Enterprise Services Ameriprise Financial. The companies were also calling for an extension of the tax holiday for both exploration and refining activities by10 years. said that the budget has been a tight ropewalk between triggering a roadmap for fiscal consolidation and managing development & popular sentiment. Ameriprise India Pvt Ltd and Executive Vice President. MD & CEO. In addition. . Also. "The budget for FY 2012-13 in our opinion was a missed opportunity.

500 per metric tonne. Axis Direct. Oil and gas exploration companies were seeking an elimination of 5 percent import tax on LNG but the Union budget on the contrary exempted natural gas and LNG from basic customs duty. In an effort to cut down the burden on the aviation sector. in addition to 4 mega handloom clusters already operational. Now if banks have to go towards financial inclusion. Banks "Banks have benefited from the budget. CMD. Textile The budget proposes various measures to promote the textile sector." he said." said C P Krishnan. He thinks that this year would be a good year for auto especially in the backdrop of that interest rate cycle are going to come down and consumptions are going to increase. A lot of our savings are going towards physical assets like gold which is in some sense unproductive. One is the message of the financial inclusion. This year looking at the easing of monetary policy. The minister proposed Rs 500 crore schemes in the 12th plan for promotion and application of geo-textiles in the North East. I do not think this can slow down the demand. The 2% hike is not very significant.000 by virtue of savings bank interest rate. they will be far more aggressive in going towards that if they know that there is a pot which is not going to go to gold. This is because most of the auto purchases are done on credit. but the government backed off from such shift. Auto "Auto has to be looked in the scenario like interest rate cut that we are expecting. So clearly financial inclusion will help banks to spread their tenets. sharing his outlook on the banking sector. one each in Mizoram. Again this will enhance the post tax-yield to investors and help in doing spreading this financial inclusion. The FM announced setting up of two more mega clusters. Last year was bad because of combination of interest rate being high and plus commodity prices also impacted their margin. one in Andhra Pradesh and other in Jharkhand. We have about far number of lower subscribers who are to bank than to telecom companies and telecom companies have virtually started in the early 1990s. but a more important thing will be interest rates. whole time director of Geojit Comtrade Ltd. the Union budget allowed direct import of aircraft turbine fuel (ATF). but is going to come . director. So. possibly citing the escalating inflationary levels in the country. The budget also revised cess on crude petroleum oil produced in India to Rs 4. He also proposed setting up of three weavers service centre. The third thing is import duty on gold. the auto sector should continue to do well because the entire growth story in India has been driven by consumption. "Second thing is the exemption up to Rs 10. Nagaland and Jharkhand."All eyes were pinged on the potential decontrol measure on diesel. A power loom mega cluster will be set up in Maharashtra. "This excise duty hike was expected. much to the delight of the struggling aviation industry." said Dinesh Thakkar.' said Nilesh Shah. There are certain long-term things in the budget which will help the banking sector. diesel prices and the overall economic growth. these companies are going to benefit. Angel Broking.

So all these things will probably deepen Indian financial sector quite well and banks will be the biggest beneficiary." .to financial system.

The numbers for the fiscal deficit are more realistic than they were for the last year.79 Crores is higher compared with market expectation.1 % of GDP is however more realistic.69 Lakh crores and net borrowing of 4. The introduction of the Rajiv Gandhi Savings scheme is a clear positive for the equity market by way of increased long-term investor participation. with about 9% increase built in the non. The fiscal deficit number of 5. It is broadly on expected lines. Tata Asset Management: "Budget is pragmatic.10 . The borrowing programme will be front loaded. 2012 at 19:12 Finance Minister Pranab Mukherjee today presented Union Budget 2012. Also capital market related measures such as Rajiv Gandhi Equity Saving Scheme and reduction in STT on delivery transactions will provide much needed impetus to attract small investors to the market. Principal Mutual Fund: "There are no major negatives with the budget. The increase in Service Tax by 2% and an increase in excise duty were anticipated and have resulted in some fiscal respite. Tata Asset Management Ltd: "The total Gross borrowing programme of 5. ICICI Prudential AMC: "The Union Budget 2012 has been a tight ropewalk between triggering a roadmap for fiscal consolidation and managing development & popular sentiment. Mr. The market will require the government to take the fiscal consolidation roadmap ahead with possible increase in oil/ petrol prices. Mar 16. Reduction in personal tax rates up to Rs 10 lac gives relief to a large section of people. should not be too difficult to get to. In addition. 2012 at 17:29 | Source : Moneycontrol. second-highest by any Finance Minister. Rajat Jain.plan expenditure figure.Expert's view on Budget 2012-2013 Published on Fri. CIO. The growth number looks achievable. Focus on fiscal deficit is a welcome step. and with the rise in excise duty and service tax rates." Nimesh Shah . Going forward the budget will have to be followed by a decrease in subsidy in tune with the budget estimates." Mr. which will be crucial to providing RBI headroom for significant rate action. and there are major surprises either way. Mar 16. The government has to focus on keepings its expenditure close to the budgeted number. Head .8. due to lower revenue receipts and higher redemptions in the first half of the financial year. Individually.60 % in the first half of the financial year.Sanjay Sachdev . The ten year G sec yields may trade in the band of 8. reduction in STT on delivery by 20% has added to the investors return potential for equity.MD & CEO. Below are opinions of some of the top level executives of the mutual industry on Budget 2012-2013.com Updated at Fri. Until then it is over to affirmative execution by the government. the 81st Budget in India's history. this is Mukherjee's seventh annual Budget. The breaks given to the infrastructure sector and ." Mr Murthy Nagarajan.President and CEO.Fixed Income.

A good announcement on Power.companies are welcome. which was largely expected. Peerless Mutual Fund: "The budget trajectory is headed in the right direction. Agriculture and cap on subsidies is positive. and may lead to a deepening of the bond market. the fiscal consolidation exercise is positive for country's finances." Mr. There is no indication GST and DTC roll-out. Despite baby steps. MD&CEO.inflationary and higher interest rate regime. Infrastructure. Increase in excise and service taxes and lower than expected targets on disinvestment will lead to continuity on a high. The opportunity for FIIs to invest in domestic corporate debt is a positive. Akshay Gupta. is surprising" .

gave a breather to the market. . 28 FEB: Terming the Budget 2011-2012 as “progressive” and “balanced”. The finance minister did not announce any new tax or duty. a roadmap for reforms and checking fiscal deficit. which were haunting the market. compared to an estimate of 5. “The FM has managed to announce a growth-oriented Budget. and shows that the finance ministry is betting clearly on growth. which had plummeted by 13.53. “The market was extremely nervous prior to the announcement of the Budget. Sensex. Analysts said the government's decision of not increasing the excise duty is a very bold move.69 per cent in the year so far. Analysts said investors have given thumbs-up to the efforts of finance minister Mr Pranab Mukherjee to address the major concerns of inflation and fiscal deficit. saw an impressive rebound minutes into the Budget presentation.” SMC Strategist & Head of Research Mr Jagannadham Thunuguntla said. stock market experts said it had positive surprises like encouraging FII inflow.1 per cent fiscal deficit for the current financial year. Intra-day.6 per cent of GDP in the fiscal year 2012. all of which have perked up investor mood.The road map for the fiscal deficit reduction in the coming 23 years is very encouraging for the global investors and capital market. which along with plan to contain rising inflation and fiscal deficit. it is a budget that has exceeded expectations that were rather low anyway. attracting FDI.62 points to hit a high of 18. will not be easy to meet. credit rating agency Fitch said that the governments fiscal deficit target of 4. and was fearing a tough budget. “Quantum increase in the limit for FII investment in infrastructure bonds and allowing foreign investors to invest in domestic mutual funds are bold moves towards liberalising the capital account. However. which is a great performance.” said SBI MF CIO Mr Navneet Munot. where he has hinted at taking progressive policy actions in the key areas of delivery of subsidies.” Sharekhan Head Research Mr Gaurav Dua said. Investors who have been extremely nervous so far this year were positively surprised as the Budget exceeded street expectations. It said the government will not have the benefit of one-off revenue proceeds from 3G and Broadband Wireless Access auctions as it did in the fiscal year 2011. the key index zoomed up by 595. “Thanks to the additional collection in 3G spectrum. that the government could achieve 5.296.Budget exceeds D-Street expectations: Market experts Press Trust of India NEW DELHI. Overall. boosting infra development during the course of the year.1 per cent of GDP in the fiscal year 2011. driven by buying across sectors.” said Bonanza Portfolio Head Equity Avinash Gupta.