Smadja said at the India Economic Summit, organised jointly by the WEF and the Confederation of Indian Industry, that considering the losses of the public sector and the accumulated deficits of the state, "the total deficit seems to have no chance to be below 9 per cent".

The situation, he said, may be worse than the last year "as we have seen a clear pattern that expenditure has overshot the target while revenue is below target," said Smadja.

In the previous year, the Government had set a target of 4.5 per cent fiscal deficit but the figure was above 6 per cent. Adding the accumulated deficits of the states and the losses of the public sector units, the total deficit was 8.5 per cent of the GDP. Smadja said in the first nine months of the current financial year, while expenditure had grown 17 per cent, revenue had grown only 14 per cent. Smadja said even finance minister Yashwant Sinha had warned that the country was on the verge of falling in a debt trap and all soft options had been exhausted. Already,50%of Government's revenue went towards servicing debt and Centre's borrowing was crowding out private borrowing with the result that interest rates varied between 12.5 per cent and 16.5 per cent while inflation was around 3 per cent. "This proves to be a handicap for investment", he said. He said four factors had created a negative fiscal impact - Kargil war, elections, cyclone in Orissa and the increase in international oil prices.

Paintinggrim picture of the economy, Smadja said equally worrisome was the situation at the state level - with some of the states being technically bankrupt. Smadja said the only solution was privatisation, but it should not be recognised as a means of revenue, but also injection of much-needed efficiency.