For a second year, govt misses fiscal deficit target
SLOWDOWN IN FISCAL CONSOLIDATION 3.4% fiscal deficit target for FY20, but officials say revised GDP figures to help contain it at 3.1%
The government has revised the fiscal deficit target for 201819 or FY19 to 3.4 per cent of gross domestic product (GDP) from the Budget Estimate (BE) of 3.3 per cent.
For 2019-20 or FY20, Finance Minister (FM) Piyush Goyal has retained the fiscal deficit at 3.4 per cent of GDP, thus delaying the fiscal consolidation path to 3 per cent of GDP.
The Budget numbers for FY20 did not take into account revised GDP figures, Economic Affairs Secretary Subhash Garg said. “We have new GDP numbers. According to that, GDP for 2019-20 is about ~225 trillion, as against ~220 trillion which we have assumed in our papers. If you take there numbers, our fiscal deficit is 3.1 per cent for the next year. So the path remains as it is,” he said.
FY19 is the second consecutive year that the government has missed its fiscal deficit target. Goyal attributed the slippage to the income-support package for the farm sector announced in the interim Budget for FY20 on Friday.
“We would have maintained the fiscal deficit… and taken steps to consolidate (it). However, considering the need for income support to farmers we have provided ~20,000 crore in FY19 (RE) and ~75,000 crore in FY20 (BE),” he said.
With a possible eye on the general elections barely months away, the FM also announced a direct transfer of ~6,000 per year to small and marginal farmers.
In absolute terms, the fiscal deficit for FY19 was revised to ~6.34 trillion from ~6.24 trillion, providing for extra space of ~10,122 crore. The fiscal deficit for FY20 has been pegged at ~7.04 trillion.
Experts said it was commendable the government managed to check the upward revision of the fiscal deficit target by only this much despite a ~1-trillion shortfall in the goods and services tax (GST) collection. The higher fiscal deficit will be financed through a even higher net market borrowings.
Garg at the post-Budget press conference said the Centre’s net borrowings for the current fiscal year will be an additional ~32,500 crore.
“The revised fiscal deficit… is as per the market’s expectations. The markets were expecting a slippage on the larger side, given the huge expenditure commitments this year. Hence the slippage is within reasonable limits,” said Soumya Kanti Ghosh, chief economic advisor, State Bank of India.
This is not the first time that the government has slipped on the fiscal path.
For 2017-18 also, the fiscal deficit was revised to 3.5 per cent of GDP, compared to a BE of 3.2 per cent. The reason was the extraneous circumstances arising due to the implementation of the GST.
“The change in the fiscal deficit is not a significant one. Whether it will convert into a fiscal stimulus triggering consumption growth needs to be seen,” said Richa Gupta, senior director and senior economist, Deloitte India.
According to the interim Budget documents for FY20, the government will aim for a fiscal deficit of 3 per cent of GDP in 2020-21 (FY21). This is a steep road map. Earlier, it was supposed to be 3.1 per cent in FY20 and then 3 per cent in FY21.
For FY19, the total revenue (RE) is now pegged at ~18.23 trillion, versus a BE of ~18.18 trillion. Total expenditure has been revised to ~24.57 trillion, from a Budget target of ~24.42 trillion.
For FY20, total revenue has been budgeted at ~20.8 trillion, with gross borrowing pegged at ~7.04 trillion. The total Budget size is estimated at ~27.84 trillion, an increase of 13.3 per cent from the FY19 revised numbers.