Pranab Mukherjee is not alone in his grief when it comes to country's burgeoning
fiscal deficit; finance ministers around the world are losing sleep over the inability of rapidly falling revenue to meet governments' mounting expenditure. There is no magic wand either to stimulate growth or encourage corporations to invest, promote consumption and wipe out the fiscal deficit.
Many of the world's economies are also paying a price for the excessive stimulus packages passed after the global financial meltdown. India's fiscal deficit is all set to expand from the targeted 4.6 per cent of GDP in 2011-12 to anywhere between 5.0 and 5.6 per cent. The credit goes to rising social sector spending, passed for political gains, and also to the stimulus (by way of lower excise duties).
Look at Spain; this shrinking European economy has seen its deficit balloon to 8.5 per cent against the budgeted 6 per cent in calendar year 2011. This figure is way off the mark to align with the country's commitment to reduce the budget deficit to the 3 per cent of GDP as part of its commitment to European Union by 2013.
This is much like Mukherjee's predicament. The finance minister has a Parliament approved Fiscal Responsibility and Budget Management (FRBM) directive to follow by targeting a fiscal deficit of 4.6 per cent in fiscal year 2011-12, 4.1 per cent for the current fiscal's budget 2012-13 and 3.5 per cent in 2013-14. These fiscal deficit targets don't seem to be achievable as the country gears up for a general election in the next two years.
Like in the
European Union, the main opposition parties - especially BJP - would make a hue and cry over consigning fiscal responsibility targets to the dustbin. Cyprus is another European country that saw its fiscal deficit crossing 6 per cent in 2011. But this small economy offers many lessons to anyone who is interested by targeting a relatively far lower fiscal deficit of 2.5 per cent for 2012. The Cyprus government has announced some bold measures like a massive cut in state spending and also a 3 per cent salary cut for public sector workers. These are the kind of unpopular measures Mukherjee cannot even think of especially after the setbacks in state election.
Neighbouring Pakistan is also reeling under a fiscal deficit of over 5 per cent. Like India, Pakistan is looking to bridge the gap, though partially by auctioning 3G licenses. Mukherjee also has a 2G auction rabbit to pull out from his hat, but it won't be easy. One of the operators - Telenor - is already mulling exiting the country.
While the economies of the world struggle to tame the deficit monster, China - though its numbers are always questionable - is sitting pretty with a 1.5 per cent fiscal deficit target for 2012. This is slightly up from the 1.1 per cent recorded in 2011.The world's second largest economy - that has grown on the back of exports to the US and Europe so far - now wants to encourage domestic consumption. This is one luxury Mukherjee doesn't have as he will be forced to impose taxes in his 2012-13 Budget, especially hiking excise duties to shore up revenue collection. China's low public debt of around 30 per cent of its GDP is another large window available to China to shore up its growth if it wants to. India, however, runs a very high public debt of over 70 per cent to its GDP, which restricts its ability to take that route to stimulate growth.
The governments of the world are tackling the fiscal deficit on a war footing. All eyes are now on the US budget where fiscal deficit has crossed a $1 trillion mark - almost 9 per cent of GDP - with public debt at $16 trillion - 100 per cent of its GDP. Facing presidential election towards the end of this year, President Barack Obama is already talking about the need for tax reforms. Japan, Germany, UK, and France are all running huge budget deficits. For everyone, the biggest challenge is to balance politics and economics. And there is no dearth of ideas. Mukherjee would surely say; "To each its own."
Finance Minister Pranab Mukherjee 
Special 
