The Centre will stick to its fiscal deficit target of 3.2% of gross domestic product (GDP) for 2017-18, finance minister Arun Jaitley said on Tuesday, signalling no let-up in fiscal discipline. Jaitley also made it clear that the Centre has no plans to announce any farm loan waiver. “We don’t have any such plan. We have the fiscal deficit target to maintain and we intend to do so,” the finance minister said, replying to a question.
Earlier, the finance minister had said the states willing to announce farm loan waiver would have to do so from their own resources and that the Centre wouldn’t offer any special package to them for this purpose.
The statements come at a time when the government spending has been a major driver of the economic growth, thanks to a plunge in private investment. Given that the government may also have to cough up an additional `21,980 crore this year if it announces revised allowances for its employees from July, the Centre’s ability to continue with robust capital spending and boost growth would be squeezed should it wish to stick to the fiscal deficit target. Last fiscal, it met its fiscal deficit target of 3.5%.
The NK Singh-led Fiscal Responsibility and Budget Management Committee has recommended that the Centre should aim for a fiscal deficit of 3% of the GDP for three straight years starting the current financial year itself and gradually reduce it to 2.5% by 2022-23. However, the government is yet to announce if it has accepted the panel’s deficit targets.
Already, fiscal deficit in April alone touched 37.6% of the Budget estimate for the current fiscal, against 25.7% in last year, according to the provisional estimate. However, it was partly due to the fact that the Union Budget was advanced by a month this year, so allocation to various departments for spending started earlier than previous years.
Gross fixed capital formation (GFCF), a gauge for fixed investment, contracted in the last quarter of 2016-17, as private investments collapsed, partly reflecting the impact of the note ban. For the full fiscal FY17, GFCF grew just 2.4%, against 6.5% a year ago.
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However, the Centre stepped up spending to stimulate the economy, which was reflected in the fact that government final consumption expenditure grew as much as 20.8% in the last fiscal, against just 3.3% in the previous year.