Budget 2019: Quality of fiscal deficit improving; significant growth in capital spending over years

Updated: July 2, 2019 5:10:58 PM

Union Budget 2019: Though revenue deficit is no longer a parameter for measuring fiscal outcomes in the FRBM Act, it is still considered as an important reference indicator.

Budget 2019: Quality of fiscal deficit improvingUnion Budget 2019 India: Average annual growth rate in capital spending has been 13.5% since last 5 years.

Union Budget 2019: Though revenue deficit is no longer a parameter for measuring fiscal outcomes in the FRBM Act (Fiscal Responsibility and Budget Management Act, 2003) from FY2020 onwards, it is still considered as an important reference indicator as it gives insights on the quality of fiscal deficit. The quality of fiscal deficit has been improving with the ratio of RD/FD consistently declining from 72% in FY2015 to 59% FY2017, i.e. recording a fall by more than 13 percentage points.

Budget 2019: Quality of fiscal deficit improvingQuality of fiscal deficit improving

However, the temporary deterioration in RD witnessed in FY2018 is on account of: (a) the transitional impact of the Goods and Service Tax (GST), and (b) distress in the agricultural sector. As acknowledged in the Government’s budget documents also, accrual of the full benefit of GST reforms/revenues as well as fiscal impact of income support scheme for farmers will continue in FY 2019-20 as well.

Budget 2019: Quality of fiscal deficit improvingAverage growth of capital spending

Average annual growth rate in capital spending has been 13.5% since last 5 years, which is much higher than 8% of growth budgeted.

Except for 2017-18, all the years show a very good absorption of the capital outlays budgeted. The government’s push on infrastructure improvement and the affordable housing as well as de-bottlenecking of some of the stalled projects are reflected in these numbers.

By Ranen Banerjee, Partner and Leader Public Finance & Economics, PwC India

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