Overshooting the government’s fiscal deficit target is not such a bad idea. The target of 3.3% of GDP doesn’t have to be sacrosanct, especially in an economy that has slowed alarmingly. Modi government should admit that the target is unrealistic, and focus on providing economic stimulus and reviving growth instead.
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I would be thrilled if the fiscal deficit could be contained to 5%. For the last five odd years, the much vaunted fiscal responsibility and restraint is largely a figment of the imagination. Huge windfall receipts from lower oil prices, off balance sheet borrowings by institutions such as Minister Gadkari’s NHAI and FCI, hoovering out of accumulated reserves – even advance premium payments – of LIC, ONGC, lately the RBI, we really do not know how large the fiscal hole is, beyond understanding that the state governments are equally stretched. So one would not agonise over 50 basis points above 3.3%. 2. It is now becoming clear that the economic slowdown, attributable almost entirely to how the economy has been managed, is adding to fiscal stress. It is also exacerbating the NPA mess, because few corporates could have foreseen in September 2013 where we would end up.