Belt tightening: Jaitley sticks to fiscal prudence

To set up committee to re-assess statutory targets

Finance Minister Arun Jaitley chose the path of fiscal prudence by refraining from deferring the fiscal consolidation exercise by one more year even as the tax-GDP ratio is projected to stay unchanged at 10.8 in the current and next financial years.

At the same time, Jaitley also announced a committee to review the Fiscal Responsibility and Budget Management (FRBM) Act to assess whether the targets could be adjusted to the needs of the economy.  

The finance minister was able to stick to statutory fiscal deficit commitments by raising non-capital expenditure only 9 per cent in 2016-17 over the Revised Estimates (RE) of 2015-16. Also, though Jaitley has not compromised on economic growth by raising Plan expenditure over 15 per cent, he has kept the rise in Non-plan expenditure to only nine per cent  

The fiscal deficit target, thus, will be retained at 3.5 per cent of GDP in 2016-17 and 3.9 per cent for this financial year. Overall, the government needed to tighten its fiscal belt by just over Rs 1,000 crore in 2016-17 compared to the RE of the previous year — in absolute terms the fiscal deficit is projected to come down to Rs 5.34 lakh crore from this year's RE of Rs 5.35 lakh crore. (BUDGET AT A GLANCE)

According to the Controller General of Accounts, the Centre's fiscal deficit reached Rs 5.32 lakh crore till January this year, close to the Revised Estimate (RE) for 2015-16.  

To keep the deficit to the 2016-17 target, Jaitley has assumed an 11 per cent growth in nominal GDP. Given that the Economic Survey projected the real economic growth rate (adjusted for inflation) at 7-7.75 per cent, the Budget estimated inflation at 3.63 per cent, which puts real economic growth at an average of the two bands.

This time, the finance has kept the growth in direct tax collections at reasonable levels after projections fell below Budget expectations. The finance minister projected direct tax collections to rise 12.64 per cent to Rs 8.47 lakh crore for 2016-17 against Rs 7.52 lakh crore in RE 2015-16.Indirect tax collections are projected to go up 10.8 per cent to Rs 7.79 lakh crore in 2016-17against Rs 7.03 lakh crore for 2015-16 (RE).

Overall, the Centre's gross tax revenue is expected to rise 11.73 per cent at Rs 16.30 lakh crore in 2016-17 from Rs 14.59 lakh crore in 2015-16 (RE).

Keeping aside 42 per cent of the states' revenues, the Centre's net tax revenue would also rise by over 11 per cent at Rs 10.54 lakh crore against Rs 9.47 lakh crore, on account of  infrastructure cess on items like cars, which would yield revenues for it without the need to share it with the states.

On the other receipts side, the government expects to earn Rs 3.22 lakh crore from non-tax revenues against the RE of Rs 2.55 lakh crore for 2015-16. Most of this would come from spectrum sale at Rs 98,994 crore .

The Centre's net receipts totalled Rs 14.37 lakh crore, up over 14 per cent against Rs 9.47 lakh crore in the RE of 2015-16. Total expenditure also rose 10.81 per cent to Rs 19.78 lakh crore against the RE of 17.85 lakh  crore.

At the same time, the government has decided to do away with the Plan and Non-plan classification of expenditure once the 12th five year plan ends next year. From 2017-18, only revenue and capital expenditures will be given in the Budget. Jaitley did not clarify whether five year plans will continue.