Finance Minister P Chidambaram to meet the fiscal deficit target of 4.8 per cent of GDP for FY14, which he has defined as the 'red-line'.There is a possibility that the finance minister will positively surprise the market by announcing a deficit below 4.8 per cent.
The projected the FY15 gross market borrowingcould be at Rs. 5.8-6 lakh crore, or 4.2 percent of GDP.The government will end FY14 with a cash surplus of about Rs. 1 lakh crore, despite the cancellation of the Rs.15,000-crore government securities (G-Secs) auction, as national small savings fund collection had exceeded the budgeted amount byRs. 36,100 crore as of December. The non-tax revenues, including disinvestment proceeds, could surprise on the upside as dividend flows from state-run enterprises have been higher than anticipated.
The government MAY end FY14 with dividend/profit collection of 0.85 per cent of GDP, exceeding its target of 0.65 per cent.The ongoing spectrum auctions are likely to yield enough revenues to meet the budgeted proceeds.Already on the ninth day of the auctions, the government is assured of close to Rs. 62,000 crore in bid amounts.
It is expected that the government may trim expenditure by 0.55 per cent of GDP to meet the fiscal deficit target.Because of the coming general elections, Mr Chidambaram will present the vote-on-account next Monday.The market participants will closely watch the FY15 fiscal deficit target, which will determine the size of market borrowing for the next fiscal year.The target is widely expected to be set at 4.2 per cent of GDP, in line with the fiscal consolidation plan outlined in October 2013
The Finance Minister was committed at that time to reducing the fiscal deficit by 0.6 per cent of GDP annually, he is unlikely to deviate from this plan in his final Budget.
"However, the new government will have the option of revisiting the deficit target and borrowing plans for FY15. This means the borrowing laid out in the interim budget will be valid only for Q1 of FY15, if the new government revises the FY15 fiscal deficit projections.
It is expected that the government to project 15.3 per cent growth in tax revenue in FY15. In line with the expected trend in FY14, most of the increase is likely to come from robust income tax and services tax collections.The government is likely to project combined tax and non-tax revenue collection at equivalent to 9.7 per cent of GDP for FY15, marginally better than 9.3 per cent of GDP we expect in FY14, it said.
To meet its likely goal of narrowing the fiscal deficit by 0.6 per cent of GDP in the next fiscal year, the government will have to cut spending by at least another 0.3 per cent of GDP in FY15.