Budget 2018: Rating agencies led by Crisil have raised concerns over the curtailed capital spending to cap fiscal deficit at 3.5 per cent for FY18, and have warned that the higher target for next fiscal will delay the fiscal consolidation process by three years. “It is the productive spending in the economy that has seen a compromise, making way for revenue spending,” Crisil said in a note today. The agency, a division of Standard & Poor’s, said government will be breaching the fiscal deficit target for the second consecutive year in FY18. Finance minister budgeted a 3.5 per cent FD for this fiscal, against the initial estimate of 3.2 and 3.3 per cent for next fiscal instead of the glide path of 3 per cent. “The more worrisome part is that the breach in fiscal deficit is despite a cut in capital expenditure, which that means that had government stuck to its targeted capex for fiscal 2018, the deficit would have been still higher,” Crisils’ analysts added.
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It can be noted global rating agencies closely look at the fiscal deficit numbers and have a bearing on inflation and macro economic stability in general. Crisil said the 3.3 per cent fiscal target announced for FY19 puts back the fiscal consolidation programme to take the gap down to 3 per cent by three years to 2021. Meanwhile, it’s peer Icra termed the “sharp rise” in revenue deficit in FY18 as a “concern”. Capital expenditure has been revised downwards by Rs 40,000 crore to Rs 2.7 trillion in FY18, primarily led by rationalisation of support provided to the Railways and externally-aided project loans to states. The agency, whose parent Moody’s had last November surprisingly upgraded the sovereign ratings which came in after 14 years, said the revenue deficit has worsened the quality of the fiscal deficit. Crisil said the rural sector is the primary focus of the Budget with proposals such as assured minimum support price, export liberalisation of agri-products expected to revive farm realisations, and increased expenditure on rural infrastructure.
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However, the agency was skeptical if agricultural sector will benefit from the budget. “Announcing new measures and committing resources is not enough to improve the condition of the farming community,” it said, adding support from the states, and implementation announced schemes and measures is essential. While welcoming social sector announcements like the healthcare scheme, Crisil said the Budget “lacked big ideas to boost consumption” which will disappoint the consumption-oriented sectors. Icra said the last full Budget of the Modi government was expected to deviate from the fiscal deficit targets and said the proposals focus more on rural and social sectors.