Piyush Goyal begins budget on chest-thumping note, but fiscal deficit sneaks past 3.3%

Finance minister Piyush Goyal before the interim budget presentation outside Parliament | Suraj Singh Bisht/ThePrint

The deficit target will soothe markets, foreign institutional investors and rating agencies, though it will be revisited when a full budget is presented.

New Delhi: Presenting his first budget, Finance Minister Piyush Goyal Friday kept the fiscal deficit for the current financial year at 3.4 per cent of the gross domestic product, against the target of 3.3 per cent, despite stiff challenges and increased spending on several sectors including agriculture and micro, small and medium enterprises.

The fiscal deficit target for 2019-20 has also been set at 3.4 per cent.

So far, indirect tax collections have remained low while the disinvestment exercise has not given the desired results.

Fiscal deficit is widely considered as a reflection of health of the economy.

The deficit target will soothe the markets, foreign institutional investors (FIIs) and rating agencies, though the assumptions of the interim budget will be less binding with Lok Sabha elections approaching, and will be revisited when a full budget is presented by the new government in July-August.

Fiscal deficit was brought down to 4.1 per cent in 2014-15, to 3.9 per cent in 2015-16 and to 3.5 per cent in 2016-17. In 2017-18, fiscal deficit was at 3.5 per cent of GDP.

The State Bank of India’s Ecowrap report earlier said the government could cut capital expenditure by Rs 50,000 crore while postponing Rs 30,000 crore of revenue expenditure to the next year.

“The government has also dipped into the small saving scheme to meet a part of its expenditure. This has been in line with the trend observed in the past few years,” the report said.

A JP Morgan report has pointed out that even fiscal deficit target has been maintained at reasonable levels, its quality will be as important. The report also added that the fiscal wild-card for 2019-20 will be whether the government will be the recipient of any “excess capital” from the Reserve Bank of India’s balance sheet. The expert committee that is looking into it is expected to come back with its recommendations by the end of March.

Earlier, Finance Minister Arun Jaitley—who is ill and receiving treatment in the US—and even economic affairs secretary Subhash Garg had underlined that the government would adhere to the fiscal deficit target.

Moody’s reaction

Calling the slippage in fiscal deficit target a “credit negative”, global rating agency Moody’s said while the budget did not envisage new policies to increase revenues, a number of expenditure measures were announced, which will increase outlays and put pressure on the government’s ability to meet its set target.

“Policies aimed at promoting expenditure efficiency through rationalization of government schemes and better-targeted delivery, including through direct income transfer schemes, are credit positive when implemented effectively…However, their effects will take time to bear fruit,” Gene Fang, associate managing director, sovereign risk group, Moody’s Investors Service, said in a note.

This article has been updated to include the reaction of Moody’s Investors Service.