The government aims to contain the fiscal deficit for FY18 to 3.2 per cent of the GDP, and 3 per cent in FY19.

New Delhi: The Economic Survey on Monday suggested a modest consolidation in fiscal deficit that credibly signals a return to the path of gradual but steady deficit cut.

The government aims to contain the fiscal deficit for FY18 to 3.2 per cent of the GDP, and 3 per cent in FY19.

“Reflecting largely fiscal developments at the center, a pause in general government fiscal consolidation relative to FY17 cannot be ruled out,” said the Survey.

There have been some analysts who have been suggesting that India postpone its fiscal consolidation roadmap to focus on growth.

“A key policy question will be the fiscal path for the coming year. Given the imperative of establishing credibility after this year, given the improved outlook for growth (and hence narrowing of the output gap), and given the resurgence of price pressures, fiscal policy should ideally have targeted a reasonable fiscal consolidation,” said the pre-budget survey tabled in the Parliament by the finance minister.

However, it cautioned setting overly ambitious targets for  consolidation — especially in a pre-election year-based on optimistic forecasts that carry a high risk of not being realised. It will not help garner credibility either.    “Pragmatically steering between these extremes would suggest the following: a modest consolidation that credibly signals a return to the path of gradual but steady fiscal deficit reductions,” it said.

The Survey said that against this overall economic and political background, economic management will be challenging in the coming year. If the obvious pitfalls (such as fiscal expansion) are avoided and the looming risks are averted that would be no mean achievement, it said.

“Persistently high oil prices remain a key risk. They would affect inflation, the current account, the fiscal position and growth, and force macroeconomic  policies to be tighter than otherwise,”  it said.