Despite the compulsions of kick-starting growth, finance minister, Arun Jaitley has opted not to stray too far from the fiscal deficit targets recommended by the FRBM Act and opted for a fiscal deficit of 3.2% of GDP, or R5,46,532 crore. This has achieved by tightening his purse strings – the total expenditure bill for next year is R21.47 lakh crore, an increase of 6.57%.
The importance of being fiscally prudent was stressed by the chief economic advisor on Tuesday who said the impact of the demonetisation exercise would be transient.
Nevertheless, demonetisation is expected to shave 25 to 50 basis points off the GDP for the current year and growth for 2017-18 too is pegged at just 6.75%-7.5%. Where the finance minister has displayed exemplary prudence is in budgeting for a lower revenue deficit at 1.9% of GDP, or R3,21,163 crore. In 2016-17, it was 2.1% of GDP.
To be sure, the government has been restrained in its spending targets; the expenditure on the revenue account is up 5.9% – partly because the brunt of the impact of the 7th Pay Commission’s recommendations was borne in 2016-17 and it’s the higher allowances that will be paid out next fiscal.
The subsidy bill for 2017-18 is higher by just R7,634 crore with the tab for fertilisers unchanged at R70,000 crore and the outlay for food going up by R10,000 crore to R1.45 lakh crore. The FM will save R15,000 crore on capital infusion into banks.
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As for capital receipts, the finance minister has pencilled in R11,000 crore from the stake sale in general insurance companies to help him achieve a target of R72,500 crore. He is hoping to earn R46,500 crore from disinvestments, which is higher than the R36,000 crore. He has scaled down the target for strategic disinvestments to R15,000 crore from – this is a smaller target than that in 2016-17 when it was R20,500 but appears somewhat optimistic.
From telecom receipts, the finance minister is hoping to get R44,342 crore which is nearly half the previous year’s target amount of R98,994 crore; that is reasonable because the government has ended up collecting nearly R20,000 crore lower at just R78,715, as seen in the revised estimate.