Budget proposal seen as shift towards consumption spending
NEWDELHI: The Union budget has proposed to stop setting targets on revenue deficit reduction from next year through an amendment in the Fiscal Responsibility and Budget Management (FRBM) framework.
Experts say this may sway government’s expenditure more towards consumption spending away from more productive capital expenditure.
In his budget speech, finance minister Arun Jaitley said he is accepting the key recommendations of the N K Singh committee on fiscal discipline to bring down debt-to-gdp (gross domestic product) ratio to 40% by 2024-25.
“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,” Jaitley said.
The revenue deficit broadly measures the extent of borrowings used for revenue expendilevel ture, while fiscal deficit measures the overall borrowing to finance both revenue account deficit as well as capital account deficit.
For a few years, the centre has also been reporting a narrower version of revenue deficit called “effective revenue deficit”, which measures the revenue deficit minus grants to states for creation of capital assets.
The government has proposed to abandon tracking both these targets. While the government managed to keep its fiscal deficit in 2017-18 at the previous year’s of 3.5% of GDP after fiscal slippage of 30 basis points, its revenue deficit during the period has slipped to 2.6% of GDP from 1.9% of GDP during the same period, at a time it has compressed capital expenditure by ₹36,000 crore from its budget estimate.
“There is no great qualitative difference in government’s capital and revenue expenditure. A lot of capital expenditure is done outside the budget by public sector units. The distinction is more artificial than real,” economic affairs secretary Subhash Chandra Garg said in an interview.
In the medium-term fiscal policy statement released as part of the budget documents, the finance ministry said in a country with numerous development deficits, an undue focus on revenue deficits may be detrimental to equitable development. “Human capital and its development by focusing on schools and hospitals and also maintenance of assets, which are in nature of revenue expenditure, are as important to improve productivity as buildings and roads,” it added.