Budget 2020: Nirmala Sitharaman may not be able to meet the fiscal deficit target, here’s why

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Updated: December 31, 2019 7:12:43 PM

Economists believe that given the current economic situation there could be a slippage of 30 basis points in the fiscal deficit this fiscal.

Budget 2020 IndiaBudget 2020-21: Nirmala Sitharaman estimated fiscal deficit to be 3.3% of the GDP.

Budget 2020-21: Finance Minister Nirmala Sitharaman may not be able to stick to the fiscal deficit target in the first full year budget of Prime Minister Narendra Modi’s second term which will be presented in February. In her maiden budget presented in July 2019, she had estimated that the fiscal deficit for FY 2019-20 will be 3.3% of the GDP. However, due to the slowdown in economic growth, the government is not only facing problems in revenue mobilisation but the situation further aggravated as the government announced a stimulus package, including a sharp cut in the corporate tax rate, that is likely to widen the fiscal deficit. Economists believe that the fiscal deficit may go up by 30 basis points, from the budgeted figure of 3.3% of the GDP to 3.6% of the GDP in the current financial year.

In this year’s budget, finance minister Nirmala Sitharaman estimated that the Union government’s total borrowings will be nearly Rs. 7.04 lakh crore, 11% more than the previous year’s figure which has been pegged at Rs 6.34 lakh crore as per the revised estimate.

Economists believe that the fiscal deficit that denotes the Union government’s total borrowing requirement in a financial year could go up by Rs 60,000-65,000 crore in this fiscal.

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“Given the economic slowdown and the corporate tax rate cut and by also taking other factors into consideration, the fiscal deficit, in any case, will be higher,” said Sunil Sinha, Principal Economists of India Ratings.

“Our calculation shows that there will be a slippage of 30 basis points,” he told Financial Express Online.

Economists believe that in a slowing economy it is not advisable for the government to contain fiscal deficit if it hampers economic growth.

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NR Bhanumurthy, professor of economics and National Institute of Public Finance and Policy says that the government should focus on increasing the capital expenditure rather than trying to contain the fiscal deficit at 3.3%.

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“Strengthening of FRBM Act doesn’t happen when the economy is slowing down. Sticking to the FRBM is not the way. You need to go for stimulus, you need to go for countercyclical measures,” said NR Bhanumurthy.

In order to induce fiscal discipline in the functioning of the Union and state governments, then Prime Minister Atal Bihari Vajpayee had passed Fiscal Responsibility and Budget Management Act in 2003.

“You cannot simply say that I want to stick to FRBM and the growth will go up. That cannot happen,” he told Financial Express Online.

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