3% deficit plan stretched but fiscal consolidation goes on

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Published: March 1, 2015 2:56:39 AM

New road map puts fiscal deficit targets at 3.9% for 2015-16, 3.5% for 2016-17 & 3% for 2017-18

Union Budget, Union Budget 2015, Union Budget highlights, Arun Jaitley, Narendra Modi, Fiscal deficit, GDP, indian economyThough the government has succeeded in meeting the challenging 4.1% fiscal deficit target in FY15 despite sluggish tax collection, maintaining the earlier fixed road map for reaching the 3% level would have been a tough task.

Finance minister Arun Jaitley stretching the planned time to reach the fiscal deficit figure of 3% of GDP from two years from now to three years has been on expected lines, with senior officials in the finance ministry already talking about such a move to raise public investment.

Though the government has succeeded in meeting the challenging 4.1% fiscal deficit target in FY15 despite sluggish tax collection, maintaining the earlier fixed road map for reaching the 3% level would have been a tough task, especially when private sector investment has dried up.

“I want to underscore that my government still remains firm on achieving the medium-term target of 3% of GDP. But that journey has to take account of the need to increase public investment. Total additional public investment over and above the RE is planned to be R1.25 lakh crore, of which R70,000 crore would be capital expenditure from budgetary outlays,” the minister said, announcing the new medium-term fiscal roadmap.

He also pointed out that with the economy improving, the pressure for accelerated fiscal consolidation has decreased.

According to the new roadmap, fiscal deficit targets for the next three years are: 3.9% for 2015-16; 3.5% for 2016-17 and 3% for 2017-18. The additional money available would be utilised for funding infrastructure.

But despite extension of the fiscal consolidation road map by a year, the underlying story of the government balance sheet is that the Budget is continuing on the path of progressively reducing the gap between government resources and spending.

The liabilities of the central government, as a percentage of GDP in FY15, are estimated at 46.8% and will reduce to 46.1% in FY16. The targets fixed for FY17 and FY18 are 44.7% and 42.8%, respectively.

While Plan expenditure for FY15 has been cut by R1,07,066 crore from the budgeted R5,75,000 crore to attain the 4.1% fiscal deficit target, it has been budgeted at R4,65,277 crore for FY16.

The non-Plan expenditure for FY16 is estimated at R13,12,200 crore. Total expenditure for the next financial year has been budgeted at R17,77,477 crore.

Gross tax receipts, targeted to grow at 16% over FY15RE, have been pegged at R14,49,490 crore; and devolution to the states is estimated to
be R5,23,958 crore while the share of the central government will be R9,19,842 crore.

Non-tax revenue for the next fiscal is estimated to be R2,21,733 crore — a tad higher than R217831 crore in FY15RE. Non-tax revenue grew 45% in FY14 and is estimated to rise by 6.7% in FY15; but over the next two years, the government expects it to register modest growth.

On the borrowing side, total market borrowing in FY15 is now estimated at R4,46,922 crore, which is a reduction by R14,283 crore. The net borrowing in nominal terms is budgeted to grow at just 2.1% in FY16, to R4,56,405 crore.

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