Friday, December 12, 2008

Fiscal Deficit

What is fiscal deficit?
Fiscal deficit is essentially the difference between what the government spends and what it earns. It is expressed as a percentage of GDP.
When the net amount received (revenues less expenditures) falls short of the projected net amount to be received. This occurs when the actual amount of revenue received and/or the actual amount of expenditures do not correspond with predicted revenue and expenditure figures. This is the opposite of a revenue surplus, which occurs when the actual amount exceeds the projected amount.
For example, consider an organization with budgeted revenue of $325,000 and budgeted expenditures of $200,000, which equates to a net amount of $125,000. During the fiscal year, the organization's total revenue is actually $300,000, while its total expenditure is $195,000. The net amount received by the organization is $105,000, which is $20,000 less than the projected receipt of $125,000. Therefore, although the organization generated a positive net amount of proceeds, it fell short of the projected amount, creating a revenue deficit.
India's fiscal deficit was brought down to 3.17% (Rs 1, 43,653 crores) of the gross domestic product in 2007-08 from 3.8% in 2006-07. The government has promised to cut the deficit further to 2.5% of GDP (Rs 1,33,287 crores) by the end of 2008-09, but looking at the way things are going, economists say, it is unlikely the government will meet its target
India's fiscal deficit continues to be among the highest in the world and underlying pressures are not entirely showing up in headline fiscal numbers, Reserve Bank of India Governor Y. V. Reddy said on Monday.
Earlier in the Budget document, the government's revenue expectations are realistic, but expenditure appears to be underestimated. This may be because expenditure to the tune of 2.0-2.5 per cent of GDP remains off budget. There is no provision in the budget for the loan waiver of $16.8 billion to the farmers (earlier Rs.60,000 crores and now it is increased to Rs.71,680 crores) and huge amount of $6.36 billion arrears to the Central Government employees (Rs.27145 crores for the Central sixth pay commission recommendations), which is expected to 1.85 per cent of the official GDP for 2008-09. The loan waiver scheme will benefit 3.69 crore small and marginal farmers and 59.75 lakh other farmers. This is the vote bank for the next 2009 general elections to the Congress Party.
The budget document also says that the Plan expenditure is going to rise by around Rs 38,000 crores or around 19 per cent. Non-plan expenditure will rise by a much smaller amount, by Rs 64,806 crore or 17 per cent. The actual figure may be much higher.
The fiscal deficit for 2008-09 is forecast at 2.5 per cent of GDP, lower than the deficit for 2007-08 of 3.1 per cent of GDP for 2007-08, and also lower than the 3 per cent of GDP mandated by the Fiscal Responsibility and Budget Management (FRBM) Act. It is highly unlikely that the government will achieve its forecast.
While net borrowings for 2008-09 have been budgeted at Rs 1 trillion and the gross borrowing estimate is at Rs 1.45 trillion. Critically, it does not include oil bond redemptions of Rs 13000 crores. It remains to be seen how the government finances maturing oil bonds. Therefore there appears to be a considerable upside risk to market borrowings for 2008-09. Though aimed populist in nature, many of the announcements made could fuel inflation and put pressure on the fiscal deficit in 2008-09.
Economists point out that all oil bonds and a part of fertilizer bonds are not accounted for in the Budget. This means that the government does not have to include these expenses while calculating the surplus or deficit for the year.
SO IF WE INCLUDE THIS WHAT CAN BE THE FISCAL DEFICIT……..
Tax collections were at a record Rs 5, 88,000 crores in 2007-08 helped by robust economic growth and corporate profitability. However, with growth likely to slow down in 2008-09, it remains to be seen whether the same buoyancy will be maintained.
Also, not every expert believes fiscal deficit is worrisome. Dr Ashima Goyal, professor at Indira Gandhi Institute of Development Research, believes a high fiscal deficit is an indication that the government is spending more on "productive expenditures."
India aims to bring down its fiscal deficit to 2.5 percent of GDP for the 2008-09 financial year, compared to 3.1 percent in 2007-08, but financial analysts fear a $17 billion scheme to write off the debts of millions of small farmers and tax cuts could trip up efforts. According to the Fiscal Responsibility and the Budget Management Act operationalised in 2004-05, the government must reduce its fiscal deficit to 3 pct of GDP and wipe out its revenue deficit by 2008-09.
But it has already missed its revenue deficit target and expects it to be 1 percent of GDP in the year to end March 2009. Reddy said the fiscal deficit as a percentage of gross domestic product continues to be among the highest in the world.
Market borrowings finance more than half of the gross fiscal deficit and the rest of the gap is filled by small savings, provident funds, reserve funds and deposits and advances.
The gross fiscal deficit covering both state and central government is estimated at 5.5 percent in 2007-08, according to official estimates, down from 9.5 percent in 2002-03.

ING MF files papers for US Opportunistic Equity Fund

ING Mutual Fund (MF) has filed papers with Securities and Exchange Board of India (SEBI) for ING US Opportunistic Equity Fund, an open-ended fund of fund scheme. The units of the scheme will be available at Rs 10 per unit.
Objective
ING US Opportunistic Equity Fund`s primary investment objective is to seek capital appreciation by investing predominantly in ING (L) Invest US Opportunistic Equity Fund. The scheme may, at the discretion of the investment manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. The scheme may also invest a certain portion of its corpus in money market securities, in order to meet liquidity requirements from time to time.
What is Inside?
The minimum application amount is Rs 900 and Rs 1 thereafter.
The scheme offers growth option and dividend option. The dividend option shall have payout and reinvestment facility.
The scheme will offer for redemption of units at daily intervals at NAV based prices.
The scheme will charge an entry load of 2.5% and exit load of 2% if redeemed within and including 365 days from date of investment and 1% if redeemed after 365 days but before 2 years.
Asset Allocation
The scheme aims at investing 65% to 100% in ING (L) Invest US Opportunistic Equity Fund, 0% to 20% in money market instruments including reverse repo and 0% to 35% in other overseas mutual fund schemes.
Investment Strategy
The ING US Opportunistic Equity Fund in India will act as a feeder fund into the Luxembourg based ING (L) Invest US Opportunistic Equity Fund.
The investment strategy of the Luxembourg based fund is to identify and invest primarily in a diversified portfolio of big capitalisations issued by companies established, listed or traded or which have a major portion of their business activity in the United States of America. The fund`s approach encompasses bottom-up investment process supported by top-down macroeconomic analysis and quantitative screening. The investment process will aim to add value by also following theme based approach which shall enable to capture all relevant long term growth drivers. Up to 50% of the portfolio`s foreign currency exposures may be hedged back into the USD as and when permitted by RBI and SEBI from time to time.
Performance and Management
The performance of the scheme will be measured against S&P 500 Index and the fund manager is Jasmina Parekh.

ING India fund unit investment director quits

ING Group's Indian mutual fund unit director for research and investment Paras Adenwala has left the Dutch money manager after more than three years of service.
"Yesterday was my last day," Adenwala told Reuters on Friday, adding he was yet to take a decision on his next job.
"I am weighing options. First I am taking some kind of sabbatical and may be after sometime we will decide where to join," he said.
Adenwala, who has nearly two decades of experience in the financial services sector, joined the firm in mid-2005 as chief investment officer for equity funds.
Previously, he worked with a fund venture of India's Aditya Birla Group and Canadian insurer Sun Life Financial.

ICICI Prud Technology Fund change In Fundamental Attributes

ICICI Prudential Mutual Fund has approved the changes in fundamental attributes of the ICICI Prudential Technology Fund and the scheme shall be considered as sectoral fund with effect from 12 January 2009.Change in Type of Scheme,According to the addendum, the benchmark index will be changed to BSE IT from existing BSE Tech Index, and will classify the scheme as sectoral fund Change in Investment Strategy.
The primary investment objective of the funds is to look to generate long term capital appreciation by clearing a portfolio that is invested in equity and equity related securities of technology and technology dependent companies.

A large share of the asset under management would be invested in the stocks under the Benchmark Index, BSE IT. However, the scheme may also invest in companies outside the companies listed in BSE IT but which form part of information technology services industry.