Economic Survey 2020: The general government (Centre and states) fiscal consolidation will continue thanks to expenditure compression by the states to contain their fiscal deficit at below 3% of GDP even as the Centre continues to breach its target, according to the Economic Survey tabled in Parliament on Friday.
“Going forward, considering the urgent priority of the government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year,” the Survey noted. The Centre was to bring down fiscal deficit to 3.3% in FY20 from 3.4% in FY19. Going by the trends in gross tax revenues receipts, analysts estimate a shortfall of around Rs 3.5 lakh crore in this fiscal. In all likelihood, the Centre might further delay reaching the fiscal deficit target of 3% by a few years, instead of achieving it by FY21.
The states have continued on the path of fiscal consolidation and contained the fiscal deficit within the targets set out by the FRBM Act. For FY20, the states have budgeted for gross fiscal deficit of 2.6% as against 2.4% in FY19.
The general government fiscal deficit is expected to decline from 6.2% in FY19 RE to 5.9% in FY20 . However the combined liabilities of centre and states have increased to 69.8 of GDP as on end-March 2019 (RE) from 68.5% as on end-March 2016.
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Even as the Centre has accelerated its capital expenditure amid weak growth in tax revenues and asked the companies owned by it to invest more to address the demand slump in the economy, state governments have gone the opposite way and slashed their capex from the budgeted levels. The trend, a reflection of the acute fiscal stress being experienced by most states because of the overall decline in tax revenue growth, could weaken that one pillar of the economy, government expenditure, which has over the last 2-3 years given the much-needed support to the economy while others — investment, private consumption and exports — have faltered.
According to data of seventeen large states reviewed by FE (notable omissions are Bihar and Assam for non-availability of updated information), their capex grew a measly 1.4% in April-October this fiscal, compared with a robust 32% in the corresponding period last year. In contrast, the Centre’s capex grew 13.6% during the first seven months of the current financial year, compared with 11.6% budgeted for FY20.