With low indirect tax collections and failing disinvestment, sticking to fiscal deficit target of 3.3% will be tough for Piyush Goyal.
New Delhi: The union budget due to be presented by the Modi government Friday is eagerly awaited not just because it comes months before the general elections but also because it comes amid a slowdown in the economy.
Markets and rating agencies will closely assess the fiscal consolidation plan of finance minister Piyush Goyal as he is expected to announce immediate sops to boost several sectors such as agriculture, micro, retail, small and medium enterprises, all critical for job generation.
With low collections of indirect tax and the disinvestment exercise failing to yield the desired results, it will be tough for Goyal to stick to the fiscal deficit target of 3.3 per cent of GDP in the current financial year.
Policymakers, however, are confident that either the target will be met or there could be a marginal breach at most. Besides, the net market borrowing in 2018-19 could be higher than budgeted, they add.
Experts are not so certain though.
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Meeting the target?
“Having overshot (albeit modestly) last year’s deficit target, and with bond and currency markets exhibiting some nervousness in recent weeks, we believe policymakers will want to reassure markets on the sanctity placed on fiscal targets,” a JP Morgan Chase report authored by its India economists Sajjid Z. Chinoy and Toshi Jain said Wednesday.
Goyal is also expected to chalk out the fiscal consolidation roadmap for 2019-20 by prioritising the sanctity of fiscal targets and avoiding spooking markets, the report added.
However, the State Bank of India (SBI) in its Ecowrap report Wednesday said the fiscal deficit numbers could just be optical.
“We believe that the government will stick to the fiscal deficit target…for the time being… However, such fiscal deficit numbers might be optical as of now, as indirect tax collections and even disinvestment receipts are much below target,” said the SBI report.
The disinvestment target was set at Rs 80,000 crore for this financial year. However, only Rs 34,142.35 crore could be raised till December 2018.
Credit ratings agency India Ratings pegged the fiscal deficit at 3.5 per cent.
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Government says will adhere
Union Minister Arun Jaitley, who is currently in the US for treatment, has repeatedly underlined that the government would stick to the fiscal deficit target for the current financial year.
Economic affairs secretary Subhash Garg has also reiterated that the government will adhere to the target.
Sources added that in a bid to cut expenditure, the government is likely to roll over subsidies including for food and fertilisers to the next financial year.
The government could also look at the option of using the National Small Savings Fund (NSSF) to be able to adhere to the deficit target.
The Central Statistics Office (CSO)’s economic growth projection of 7.2 per cent for the current financial year will also cause worry for the finance minister.
According to the CSO data, the Indian economy would grow slower at 6.8 per cent in the second half of 2018-19 after posting 7.6 per cent growth rate in the April-September period.
Heavens will not fall if the true figure is 3.5% and a clean breast is made of it. With the economy slowing, projections of tax revenues made a year ago are bound to go awry. What is more important is to maintain the trustworthiness of official data and statistics.