Avoid ambitious fiscal deficit targets, says economic survey

Budget 2018: Avoid ambitious fiscal deficit targets, says Economic Survey

BUDGET 2018 Chief Economic Advisor Arvind Subramanian and his team did not rule out a Union fiscal deficit wider than the targeted 3.2 per cent of gross domestic product (GDP) for the current financial year (FY18).Ahead of the Budget for 2018-19, the Economic Survey for 2017-18 said that ambitious targets of fiscal consolidation for the coming pre-election year be avoided. Does that mean the target of 3.2 per cent for the next year, given in the medium-term fiscal policy statement, is ambitious? The Survey did not go into that.

ALSO READ: Economic Survey 2018 LIVE: Realty, construction sectors to offer 15 mn jobs in 5 yrs It also said market concerns over linking Rs 500 billion of additional market borrowings to a proportionate widening of the fiscal deficit for FY18 were unfounded because this mop-up could go hand-in-hand with lower withdrawals from the National Small Savings Fund (NSSF).

It should be noted here that the government since then had reduced the amount of additional borrowings to Rs 200 billion. This means that while there is a probability of the Centre breaching the fiscal deficit target given in the Budget Estimates, states seem to be proceeding along the path of the targeted fiscal consolidation. This could be partly attributed to the Centre’s guarantee to compensate states for revenue losses under the goods and services tax (GST), says the Survey.

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The Centre’s fiscal deficit has already overshot the budgeted figure of Rs 5.5 trillion by 12 per cent till November this year. This was far above the average of the last five years at 89 per cent of the Budget Estimates, said the Survey. However, it also pointed out that disinvestment receipts would surpass the budgeted target of more than Rs 700 billion for the current financial year to partially offset the trend of lower receipts under other heads.

The Survey projected GDP at current prices to grow by 10.5 per cent, against 9.5 per cent by the Central Statistics Office. However, the Budget for 2017-18 had assumed the growth rate to be 11.75 per cent, so even the Survey’s prediction may require some tightening so far as fiscal consolidation for this year is concerned.

ALSO READ: Economic Survey 2018: India needs $4.5 trillion by 2040 to develop infra Anis Chakravarty, lead economist and partner, Deloitte India, said: “The debate on the extent of the fiscal deficit continues and whether there should be further consolidation in the near term.”

Budget 2018: Avoid ambitious fiscal deficit targets, says Economic Survey The Survey said while concerns over the fiscal deficit overshooting 3.2 per cent were real, worries over the strict linkage between additional market borrowings and the deficit were not. market borrowings do not necessarily reflect the underlying fiscal deficit. That’s because in India market borrowings are determined not just by the fiscal deficits but also by a distinctively Indian arrangement, the NSSF,” the Survey pointed out.The Survey referred to additional borrowings by both the Centre and states.

ALSO READ: Economic Survey 2018: Demonetisation, GST brought 1.8 million new taxpayers,Subramanian said market borrowings by the Centre and states did not add to a proportionate widening of the fiscal deficit. It might be true for other countries, but not for India due to the NSSF, he said.