Mumbai: Reserve Bank Deputy Governor Subir Gokarn Monday said 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 percent 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 this late evening.
"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 percent in its busy season monetary policy on October 30, 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 percent its fiscal end inflation target to 7.5 percent.
On the falling exports and rising imports, which have pushed up the current account deficit to a record USD 21 billion in October, Gokarn said, the global environment has been less conducive for business growth for some time now due to the problems in the leading economies.
"When we look at the policy agenda for the domestic economy, we are unquestionably going to be dealing with the global environment which is going to remain much less hospitable than it was in the pre-crisis years and it may go on for couple of years," he said.
Weak global environment has hit India's exports, which fell 9.7 percent from a year earlier to USD 22.3 billion in the second quarter, while imports dropped 5.08 percent to USD 37.9 billion.
The current account deficit fell to 3.9 percent in the quarter ended June from 4.5 percent 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.