The government has revised the fiscal deficit target for 2018-19 or FY19 to 3.4 per cent of gross domestic product (GDP) from the Budget Estimate (BE) of 3.3 per cent. For 2019-20 or FY20, Finance Minister (FM) Piyush Goyal has retained the fiscal deficit at 3.4 per cent of GDP, thus delaying the fiscal consolidation path to 3 per cent of GDP.
FY19 is the second consecutive year that the government has missed its fiscal deficit target. Goyal attributed the slippage to the income-support package for the farm sector announced in the interim Budget for FY20 on Friday.
“We would have maintained the fiscal deficit… and taken steps to consolidate (it). However, considering the need for income support to farmers we have provided Rs 20,000 crore in FY19 (RE) and Rs 75,000 crore in FY20 (BE),” he said.
With a possible eye on the general elections barely months away, the FM also announced a direct transfer of Rs 6,000 per year to small and marginal farmers.
In absolute terms, the fiscal deficit for FY19 was revised to Rs 6.34 trillion from Rs 6.24 trillion, providing for extra space of Rs 10,122 crore. The fiscal deficit for FY20 has been pegged at Rs 7.04 trillion.
Experts said it was commendable the government managed to check the upward revision of the fiscal deficit target by only this much despite a Rs 1-trillion shortfall in the goods and services tax (GST) collection. The higher fiscal deficit will be financed through a even higher net market borrowings.
Economic Affairs Secretary Subhash Garg said at the post-Budget press conference that the Centre’s net borrowings for the current fiscal year will be Rs 32,500 crore.
“The revised fiscal deficit… is as per the market’s expectations. The markets were expecting a slippage on the larger side, given the huge expenditure commitments this year. Hence the slippage is within reasonable limits,” said Soumya Kanti Ghosh, chief economic advisor, State Bank of India.
This is not the first time that the government has slipped on the fiscal path.
“The change in the fiscal deficit is not a significant one. Whether it will convert into a fiscal stimulus triggering consumption growth needs to be seen,” said Richa Gupta, senior director and senior economist, Deloitte India.
According to the interim Budget documents for FY20, the government will aim for a fiscal deficit of 3 per cent of GDP in 2020-21 (FY21). This is a steep road map. Earlier, it was supposed to be 3.2 per cent in FY20 and then 3 per cent in FY21.
For FY19, the total revenue (RE) is now pegged at Rs 18.23 trillion, versus a BE of Rs 18.18 trillion. Total expenditure has been revised to Rs 24.57 trillion, from a Budget target of Rs 24.42 trillion.
For FY20, total revenue has been budgeted at Rs 20.8 trillion, with gross borrowing pegged at Rs 7.04 trillion. The total Budget size is estimated at Rs 27.84 trillion, an increase of 13.3 per cent from the FY19 revised numbers.