Fiscal deficit target may be relaxed to arrest declining growth: Eco Survey

The Economic Survey on Friday made a case for relaxing the fiscal deficit target of 3.3 per cent of GDP in view of the need to arrest declining growth, estimated to touch a 11-year low of 5 per cent in the current fiscal.

The Medium Term Fiscal Policy (MTFP) statement presented with the Budget 2019-20, pegged the fiscal deficit target for 2019-20 at 3.3 per cent of gross domestic product (GDP), which was further expected to follow a gradual path of reduction and attain the targeted level of 3 per cent of GDP in 2020-21, and continue at the same level in 2021-22.

The year 2019-20 has been challenging for the Indian economy owing to the decelerating growth rate experienced in the first half of the year, said the survey prepared by a team led by Chief Economic Adviser K V Subramanian.

"While, on one hand the outlook for global growth persists to be weak, with escalated trade tensions adding to the risk; on the other hand, the pace of recovery of growth will have implications for revenue collections," it said.

In order to boost the sluggish demand and consumer sentiments, counter-cyclical fiscal policy may have to be adopted to create additional fiscal headroom, it said.

During the first eight months of 2019-20, the indirect tax collections have been muted.

Therefore, revenue buoyancy of goods and services tax (GST) would be key to the resource position of both central and state governments.

On the expenditure side, rationalisation of subsidies especially food subsidy could be an important tool for expanding the headroom for fiscal manoeuvre.

The survey further notes that the geopolitical situation unfolding in West Asia is likely to have implications for oil prices, and thereby on the petroleum subsidy, apart from having implications for current account balance.

"Going forward, considering the urgent priority of the government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year," it said.

It said structural reforms undertaken in taxation during the current financial year include change in corporate tax rate and measures to ease the implementation of GST.

The states have continued on the path of fiscal consolidation and contained the fiscal deficit within the targets set out by the Fiscal Responsibility and Budget Management (FRBM) Act, it added.