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Economy Dec 4, 2012

Fiscal deficit may touch 5.5% this year: Gokarn

Mumbai: Reserve Bank Deputy Governor Subir Gokarn said on Monday that the fiscal deficit is likely to be around 5.5 percent of the GDP this financial year, which is creating stress on the inflation front.

The Finance Ministry had recently revised its fiscal deficit target for the fiscal to 5.3 percent for 2012-13, a tad above the budget estimate of 5.1 peRcent.

"Fiscal deficit is somewhere in the region of 5.5 per cent or so. The government estimates that it will bring it to 5.3 percent, but quite some distance from the 2.5 percent- benchmark achieved in 2008," Gokarn told a meeting of the Indo-Swiss Chamber of Commerce here late last evening.

Reserve Bank Deputy Governor Subir Gokarn

"That's creating some stresses from the inflationary point as well as from the point of resources going into finance government consumption," he added.

On the inflation front, Gokarn, in-charge of monetary policy and inflation management at the central bank, said high inflation is due to the rising oil and food prices apart from the fiscal gap.

The headline inflation rose to 7.45 percent in October, which though was a little lower than 7.81 percent in the previous reading.

Citing high inflation, RBI had left the policy rates unchanged at 8 per cent in its busy season monetary policy, but had dropped enough hints that it could lower lending rates in the fourth quarter on expectation that the price index will start cooling off. However, it had also revised upwards by 0.50 per cent its fiscal end inflation target to 7.5 percent.

Weak global environment has hit India's exports, which fell 9.7 percent from a year earlier to $22.3 billion in the second quarter, while imports dropped 5.08 per cent to $37.9 billion.
The current account deficit fell to 3.9 per cent in the quarter ended June from 4.5 per cent in the March quarter, but the decline was largely due to squeeze in imports with merchandise imports falling 3.6 percent against a growth of 41 percent last year.

PTI


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