The lower GDP growth is likely to result in the government breaching the FY16 fiscal deficit target of 3.9 per cent by 0.20 per cent, domestic rating agency India Ratings said on Tuesday.
"The main reason for the higher-than-budgeted fiscal deficit is the likely lower nominal GDP growth in FY16 than the 11.5 per cent assumed in the Budget estimate," the agency said in a note.
The final fiscal deficit number for the ongoing fiscal is likely to come in at 4.1 per cent of GDP as against the government’s own relaxed target of 3.9 per cent, it added.
On an absolute basis, the fiscal gap is likely to be at the budgeted levels of Rs 5.56 trillion but the lower than expected nominal GDP growth will widen the deficit in percentage terms, it said.
During the first eight months of the fiscal till November, the government has already exhausted 87 per cent or Rs 4.83 trillion of the Budget estimate.
The note comes at a time when there is intense speculation over the strategy to be adopted by the government in the upcoming Budget.
A wider fiscal deficit is inflationary and the number is also tracked by credit rating agencies for their view on the sovereign.
In the recent past, foreign rating agencies have threatened to downgrade the sovereign rating to the junk status, which is already just a notch above investment grade at BBB- with a stable outlook, with the higher fiscal deficit number being one of the major concerns.
Under the revised fiscal consolidation roadmap, the government has to contain the fiscal deficit to 3.5 per cent in FY17, but the pressure from a likely wage hike for Central government employees, which will drill a 0.6 per cent hole in the exchequer, has led to the speculation regarding what the government does in the budget.