Challenges before FM: Boosting growth, reining in fiscal deficit

Economic slowdown leaves Finance Minister Nirmala Sitharaman with a difficult choice in her second Budget - whether to rein in fiscal deficit or widen ot to stimulate the economy

As the Modi government prepares to present its annual Budget on February 1, economic growth is on a downward trajectory and poised to be the lowest in over a decade.
 
This leaves Finance Minister Nirmala Sitharaman with a difficult choice in her second Budget — whether to rein in the Centre's fiscal deficit at the targeted level or widen it to stimulate the economy. The fiscal deficit target of 3.3 per cent of GDP for the current financial year seems challenging and the one for next year at 3 per cent of gross domestic product (GDP), given in the papers laid under the Fiscal Responsibility and Budget Management (FRBM) Act, almost impossible. 
 
Tax revenue have come under severe stress due to overestimation of numbers and cuts in corporation tax and goods and services tax (GST) rates. The collections had seen a temporary spike in FY17 and FY18 on account of demonetisation of high-value currency in November 2016, which led people to declare higher incomes than usual. 
 
Among other revenue heads, meeting non-debt capital receipts is also an uphill task. One of the main items, disinvestment, saw only Rs 18,000 crore collection so far, against the target of Rs 1.05 trillion for FY20.
 
Non-tax revenues hold some hope due to fund transfer by the Reserve Bank of India to the government to the tune of Rs 1.76 trillion and the Supreme Court's ruling on telecom companies’ payments to the exchequer. As the government struggles for revenues, the axe could fall on capital expenditure and on subsidies part of the revenue expenditure, which might be cut or rolled over to next year. Besides, borrowing by the Food Corporation of India from the National Small Savings Fund is an option. 

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