Govt committed to fiscal consolidation without compromising on investment: FM

The fiscal deficit target for next financial year beginning on April 1 has been pegged at 3.5 per cent of the gross domestic product (GDP), down from 3.8 per cent in the current fiscal 2019-20.

This is consistent with government's abiding commitment to macroeconomic stability as part of medium-term fiscal policy cum strategy statement 2020-21, Financial Minister Nirmala Sitharaman said on Saturday.

Besides, it demonstrates the government's clear intent of achieving fiscal targets and affirming commitment towards prudent fiscal management and boosting investments, she said while presenting the Union Budget 2020-21 in Parliament.

"Section 4(2) of the Fiscal Responsibility and Budget Management Act (FRBM) 2003 provides for a trigger mechanism for a deviation from the estimated fiscal deficit on account of structural reforms in the economy with unanticipated fiscal implications," said Sitharaman.

"Therefore, I have taken a deviation of 0.5 per cent, consistent with Section 4(3) of the FRBM Act both for revised estimate 2019-20 and Budget estimate 2020-21."

The Finance Minister said a fundamental overhaul of centrally-sponsored schemes and central sector schemes is necessary to align with emerging social and economic needs and to use scarce public resources optimally.

However, Moody's Investors Service said sustained weaker growth and tax cuts will make gross revenue targets difficult to achieve. The government also has limited room to reduce expenditures without further weakening growth, said Gene Fang, Associate Managing Director for Sovereign Risk.

"While the government remains committed to medium-term fiscal consolidation, any material strengthening in India's public finances will likely be limited in the near term, and the debt burden will remain sensitive to changes in nominal GDP growth," he said.

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