Fiscal deficit reaches alarming high at 6.8 percent of GDP

Indian economy's fiscal deficit is projected to widen to an 18-year high of 6.8 per cent of GDP in the current fiscal as the government continues to provide stimulus to the economy, necessitating higher market borrowings at around Rs 4 lakh crore.

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Union Budget 2009-10 highlights

With states also allowed to borrow from markets even if their fiscal deficit increases to 4 per cent of their GDP against the current limit of 3.5 per cent, the combined fiscal deficit of India will easily touch the double-digit mark.

However, Finance Minister Pranab Mukherjee committed to return to fiscal consolidation part at the earliest, even as the 13th Finance Commission is seized of the issue of setting up new targets for fiscal deficit.

"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.

Analysts noted that fiscal deficit at 6.8 per cent is within the expectation and they will wait for the Finance Commission report likely in October to comment further.

Also read -
Union Budget 2009-10 highlights

Fiscal deficit is projected to widen against 5.5 per cent expected in the Interim Budget for 2009-10 and 6.2 per cent witnessed in 2008-09 as the Centre's expenditure expanded to an all-time high of over Rs 10 lakh crore and tax income taking a hit due to stimulus packages.