Union Budget 2019: Will Nirmala Sitharaman be able to stick to fiscal deficit target in her new role as finance minister

One of the major tasks before the new Union Finance Minister, Nirmala Sitharaman, is whether she will be able to maintain the fiscal deficit target in her new role besides measures for reviving the economic growth in the country when she presents her maiden Union Budget 2019 on 5 July.

The finance minister may project a fiscal deficit target of 3.4 percent of the gross domestic product (GDP) for 2019-20, sticking to the figures in the interim Budget of 1 February, said a report in ET Now.

The report further said that the fiscal accounts are already under severe pressure now because of low tax collections.

The previous Narendra Modi government had managed to meet the revised fiscal deficit target of 3.4 percent of the GDP in fiscal 2019 after it cut last minute expenditure and rolled over fuel subsidies to make up for the shortfall in tax collection.

The interim Budget presented in February this year had revised upward the fiscal deficit target to 3.4 percent from 3.3 percent of the GDP estimated earlier for 2018-19.

 Union Budget 2019: Will Nirmala Sitharaman be able to stick to fiscal deficit target in her new role as finance minister

File image of Finance Minister Nirmala Sitharaman. PTI

According to sources, the revised target has been met with the help of expenditure savings and other measures including the rollover of the fuel subsidy. As a result, the shortfall in tax collection has been matched.

What is fiscal deficit? 

The fiscal deficit is the difference between the government's total revenue and total expenditure. It is an indication of the total borrowings required by the government. This is an important parameter to gauge the government’s overall performance and the sustainability of growth in the future.

Deficit differs from debt, which is an accumulation of yearly deficits. A fiscal deficit is regarded by some as a positive economic event.

Modi govt and fiscal deficit

Figures show that the Modi government is fiscally more prudent, said a report in the Business Today. The average fiscal deficit growth rate under Modi has been 1.7 percent lower than what was reported during his predecessor, Manmohan Singh's tenure. This can be attributed to the spike in fiscal deficit during the third year of the United Progressive Alliance-II (UPA) government.

According to The Times of India, the fiscal deficit is down by more than one percentage point since 2013-14 due to the fall in global crude prices. But states have been less restrained and their rising deficits can wipe out the gains from the Centre's achievement.

In February this year, the International Monetary Fund (IMF) had said that greater efforts would be needed to reduce the fiscal deficit as the interim budget envisages a slower pace of fiscal consolidation than previously planned.

"The interim Budget envisages a slower pace of fiscal consolidation than previously planned, delaying the time to reach the medium-term central-government debt target of 40 percent of GDP," Ranil Salgado, IMF mission chief for India said.

"To ensure that the debt target is met by 2025, greater efforts will be needed to reduce the fiscal deficit. In that regard, further steps to increase GST compliance will be critical to reach budgeted revenue goals," Salgado said in response to a question.

In his first Budget speech in July 2014, the then finance minister Arun Jaitley had said that the government would retain the fiscal deficit target for 2014-15 at 4.1 percent of GDP and reduce it further to 3 percent by 2016-17, said a report in The Economic Times. However, the final figure stood at 3.5 percent.

Similarly, in his Budget 2015-16 speech, unveiling the road map for fiscal consolidation, Jaitley had said the 3 percent fiscal deficit target would be achieved in three years as against the Fiscal Responsibility and Budget Management (FRBM) target of two years, the report said. During FY16, the fiscal deficit stood at 3.9, in FY17 and FY 18, it was 3.5 percent and in FY 19, the fiscal deficit (revised) stood at 3.4 percent.

The Modi government at many occasions in the past had indicated that there might be some shortfall on indirect taxes collection side during 2018-19 but not on the direct tax front.

Direct tax collection was revised upward to Rs 12 lakh crore. The government had originally budgeted to collect Rs 11.50 lakh crore in 2018-19 from direct taxes, which included corporate tax and personal income tax.

Likewise, in 2018-19, the Goods and Services Tax (GST) collection is pegged at Rs 6.43 lakh crore (Revised Estimate), which is lower than the targeted Rs 7.43 lakh crore.

With PTI inputs

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Updated Date: Jun 12, 2019 13:50:45 IST