Govt to get more space, albeit marginal, to contain fiscal deficit

The government leeway to contain the fiscal deficit at 3.5 per cent of gross domestic product (GDP) might be marginal, though the nominal economic growth is projected to be higher than estimated.
 

India’s nominal GDP growth, according to the Advance Estimates released on Friday, was projected at 11.9 per cent for 2016-17 against 11 per cent estimated in the Budget.

Given that the fiscal deficit was pegged at Rs 5.34 lakh crore for 2016-17 in the Budget, the fiscal deficit to GDP ratio will see reduction from 3.54 per cent to 3.51 per cent. At 3.54 per cent, the government will get an additional space of Rs 2,196 crore, which is 12 per cent of the tax expected from the Income Declaration Scheme that saw valid declarations worth Rs 55,000 crore.

The nominal GDP pegged at 11.9 per cent might be cut by the month-end, when additional data points emerge. But the Budget, likely to be tabled on February 1, will calculate the fiscal deficit on the numbers released on Friday.

EY chief policy advisor D K Srivastava said fiscal stress could come down only a bit due to advance GDP numbers. But, unlike the finance ministry, he said the tax numbers would not be buoyant. However, the Pradhan Mantri Garib Kalyan Yojana or the Income Declaration Scheme-2 might give the government some ammunition to contain the fiscal deficit.

The Centre's fiscal deficit had touched 85.8 per cent of the Budget estimates by November. It was 87 per cent of Budget estimates in the year-ago period.