New Delhi: Union finance minister Arun Jaitley on Thursday admitted that fiscal deficit would overshoot to 3.5 per cent of the GDP in 2017-18. A target of 3.2 per cent was set in the last year’s Budget.
This is the first time that Mr Jaitley has failed to achieve a fiscal deficit target set in the Union Budget.
The fiscal deficit target for 2018-19 has been set at 3.3 per cent for 2018-19 as against the Fiscal Responsibility and Budget Management Act target of 3 per cent. The deficit was at 3.5 per cent in 2016-17. The difference between total revenue and total expenditure of the government is termed fiscal deficit.
The finance minister said that in 2017-18, the Central government will be receiving GST revenues only for 11 months, instead of 12 months. This, he said will have fiscal effect. “There has also been some shortfall in non-tax revenues on account of certain developments, including deferment of spectrum auction. A part of this shortfall has been made up through higher direct tax revenues and bigger disinvestment receipts,” said the finance minister.
However, Mr Jaitley defended his track record saying that when the NDA government assumed office in May 2014, the fiscal deficit was running at very high levels. “The fiscal deficit for 2013-14 was 4.4 per cent of GDP. The Prime Minister and the government have always attached utmost priority to prudent fiscal management and controlling fiscal deficit,” he said.
Mr Jaitley pointed out that the NDA government embarked on the path of consistent fiscal reduction and consolidation in 2014.
“Fiscal deficit was brought down to 4.1 per cent in 2014-15 to 3.9 per cent in 2015-16, and to 3.5 per cent in 2016-17,” said the finance minister. He said that in order to impart ‘unquestionable credibility’ to the government’s commitment to the revised fiscal glide path, “I am proposing to accept key recommendations of the Fiscal Reform and Budget Management Committee relating to adoption of the debt rule and to bring down Central government’s debt to GDP ratio to 40 per cent.”
Mr Jaitley said the government has also accepted the recommendation to use fiscal deficit target as the key operational parameter. Necessary amendment proposals are included in the Finance Bill, he said.
Chief economist Abheek Barua, HDFC Bank, said that under normal circumstances a modest slippage in the fiscal deficit this year and the deviation from earlier outlined target of 3 per cent would seem fair and sensible. “But given the current nervousness in the bond market, perhaps a more aggressive fiscal consolidation was required,” he said.
Principal economist Aditi Nayar, rating agency ICRA, said that the revised estimate for the revenue deficit for FY2018 is sharply higher than the budgeted level, which is a cause for concern.
“Moreover, the capital expenditure for FY2018 has been revised downward by 364 billion, entailing a 4 per cent contraction over the level for FY2017 and a concomitant worsening of the quality of expenditure and the fiscal deficit,” she added.