Jaitley says FY15 fiscal deficit target 'daunting'

A day after official data showed the Centre's fiscal deficit has breached half of the Budget estimates (BE) in just three months of FY15, finance minister Arun Jaitley said on Friday that keeping fiscal deficit under 4.1 per cent of the GDP is a challenge. "It is a daunting challenge," Jaitley told the Lok Sabha in the Question Hour, while replying to a query by Kalikesh N Singh Deo of the Biju Janata Dal.

Data was released by the Controller General of Accounts on Thursday showed fiscal deficit touched 56.1 per cent of BE for 2014-15 in the first quarter.

Many economists had suggested that the fiscal-deficit target be kept a bit higher for 2014-15, but Jaitley retained it at 4.1 per cent. "I have accepted the figures and I moved on the presumption that the figures given in the Vote on Account of the Interim Budget by my predecessor (P Chidambaram) are correct. Therefore, I have maintained those figures in the larger interest of the economy," said Jaitley.

He added the government would work for more economic activity, better growth and, therefore, higher tax buoyancy.

Jaitley cautioned against over-reading monthly fiscal-deficit numbers, saying: "These monthly data are released in the earlier part of the financial year; some of the figures may actually intent to create a contrarian impression."

Explaining this point, Jaitley said a large part of the direct-tax collections starts towards the later part of the year, like March 15. Therefore, data released early might not reflect the entire fiscal position of the government across the year.

The government's tax collections stood at Rs 99,087 crore in the first quarter of FY15, constituting 10.1 per cent of BE at Rs 9,77,258 crore. At this point of time in FY14, the tax mop-up had reached 11.5 per cent of BE. Later, in a written reply, the finance minister said subsidies on oil, food and fertilisers would be brought down to 2.03 per cent in FY15 from 2.2 per cent in the previous financial year to rein in the deficit.

With active policy measures and reforms to contain fiscal deficit, the subsidy bill is expected to come down. "It is proposed to keep the subsidy level at 1.7 per cent and 1.6 per cent of GDP in 2015-16 and 2016-17 respectively," said Jaitley. He added the government would rationalise subsidies to ensure only those entitled - the vulnerable sections - are benefited. This would also be one of the major tasks of the proposed Expenditure Management Commission.

"The debate is not whether subsidies are going to be abolished as far as these sections are concerned, but the question is - are they to be rationalised so that they only reach the targeted sections?" he said.

To a supplementary question, Jaitley said the government is clear that higher taxes lead to sluggish economy.