ACCOUNTING
| Inflation, current account deficit main concerns Tue, 15 Feb 2011 01:28:09 GMT |
| Fiscal consolidation seems to be on target and we expect the revised estimates for 2010-11 to be marginally better than the budgeted 5.5% of GDP. This would happen for two reasons. First, the nominal GDP growth assumed for 2010-11 was 12.5%, but it may turn out to be higher than 16% given real growth of 8.6% and more than 7% inflation in the implicit price deflator . Second, the government borrowing benefited from an upsurge in non-tax revenues, aided by the 3G spectrum sales, as also from reasonably buoyant tax revenues. By November 2010, the revenue receipts were 70% of full year target as compared to 50% in the corresponding period last year. By November 2010, the cumulative monthly central tax revenues showed a growth of about 26%, implying a buoyancy of about 1.6 assuming a 16% nominal growth rate. Fiscal deficit was less than 50% of the budgeted by November 2010. In comparison, it was more than 76% of the annual target in November last year. Given this performance for 2010-11 , we expect the government to persist with fiscal consolidation during 2011-12 , largely based on 8.5% plus growth and reasonable tax buoyancy. With both the Direct Taxes Code and the Goods And Services Tax pushed to April 2012, no major structural impact on tax revenues is expected in 2011-12 . The budget 2011-12 faces major macro risks arising from two sources: food prices and current account deficit. High inflation, mainly due to high food and fuel prices, has been a source of persistent discomfort for policymakers this fiscal year in spite of a comfortable growth story. Both of these pressures are likely to continue in the coming year. There is disturbing news about crop risk in China and many countries trying to stock up grains. |
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