Fiscal Developments and Public Finance

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3

4.8 per cent of gross domestic product (GDP) from 6.5 per cent of GDP in 2009-10. The Budget for 2011-12 estimated a further reduction to 4.6 per cent of GDP to be achieved through a 16 per cent growth in tax revenue, disinvestment receipts of ` 40,000 crore and moderation in growth in expenditure to 4.9 per cent. Economic developments in the current fiscal have panned out very differently than was envisaged at the time of budget formulation. With a sharp deceleration in real GDP growth, particularly in the industry sector and continued high levels of prices in key commodities, a slippage is likely in the deficit targets envisaged at the time of Budget Estimates. However, with states performing better in overall terms, the combined deficit of the centre and states appears to be on firmer footing, which augurs well for strengthening medium-term macroeconomic prospects. The medium-term outlook is firmly on the consolidation path; albeit with a likely longer tail in terms of time horizon.

Rapid fiscal consolidation was effected in 2010-11 with fiscal deficit dropping to

3.2 The macroeconomic environment has been under stress since 2008-09 when the global economic and financial crisis unfolded, necessitating rapid calibration of policies. Fiscal expansion followed in 2008-09 and 2009-10 did yield macroeconomic dividends in the form of a sharp recovery in 2009-10, which stabilized in 2010-11 at the same 8.4 per cent level of growth. Economic Survey 2010-11 had succinctly indicated the preponderantly structural nature of the fiscal deficit in India and underscored the need for sustained fiscal consolidation to support medium-term growth prospects. Given this nature, the resumption of fiscal consolidation in 2010-11 as envisaged in the Budget for 2010-11 was apposite and fairly ambitious. The outcome for