Arun Jaitley sticks to deficit of 3.5 per cent

Keeping in mind the need to balance economic growth and financial management, finance minister Arun Jaitley on Monday adhered to the fiscal consolidation roadmap by proposing to keep the deficit at 3.5 per cent of GDP in 2016-17 in the Union Budget.

He also assured that the development agenda will not be compromised and a committee would be set up to review the working of Fiscal Resposibility and Budget Management.

This move by the government opens up the possibility for the RBI to go in for rate cuts, experts felt.

“Room for RBI rate cut opens up, as early as in the April 2016 policy meeting, following the government sticking to both FY16 and FY17’s fiscal deficit target. Additionally, the ongoing supply pressure in bond market is likely to ease in the near term,” Mr Soumyajit Niyogi, associate director — Credit & Market Research Group, India Ratings & Research said. The fiscal deficit in current fiscal has been estimated at 3.9 per cent, which will be brought down to 3.5 per cent in the next fiscal. “While doing this, I have ensured that development agenda has not been compromised,” Mr Jaitley said.

The total government expenditure in the next fiscal would be Rs 19.78 lakh crore. Of this, Rs 5.50 lakh crore would go towards plan expenditure and another Rs 14.28 lakh crore towards non-plan expenditure. The revenue deficit for current fiscal has been bettered to 2.5 per cent of the GDP, from the budgeted 2.8 per cent.

He further said that in view of the uncertainty and volatility in global markets, time has come to review the FRBM Act. A committee to review the implementation of FRBM would be set up, he said, adding that the government will also work with the state governments towards doing away with the distinction between plan and non-plan expenditure. Last year, Mr Jaitley had delayed the fiscal consolidation roadmap in order to build infrastructure by boosting public investment.

As per the deficit roadmap announced by Mr Jaitley in the last budget, fiscal deficit was to be brought down to 3.9 per cent in the current fiscal and further to 3.5 per cent by 2016-17. The deficit was to be lowered to three per cent by 2017-18.