• Rajasthan

    Cong 99
    BJP 73
    RLM 3
    OTH 24
  • Madhya Pradesh

    Cong 114
    BJP 109
    BSP 2
    OTH 5
  • Chhattisgarh

    Cong 67
    BJP 15
    JCC 7
    OTH 0
  • Telangana

    TRS-AIMIM 95
    TDP-Cong 21
    BJP 1
    OTH 2
  • Mizoram

    MNF 26
    Cong 5
    BJP 1
    OTH 8

* Total Tally Reflects Leads + Wins

IMF sees India returning to fiscal consolidation: 3 key takeaways

By: | Published: February 16, 2018 1:38 PM

After India pegged its fiscal deficit target at 3.3% of GDP for FY19 in the recent Union Budget, the International Monetary Fund welcomed the move, saying that India is returning to the path of gradual fiscal consolidation. We take a look at three key takeaways from the development.

IMF welcomes the FY fiscal year 2019 budget targets and the target for a fiscal deficit of 3.3 per cent of GDP. (Image: Reuters)

After India pegged its fiscal deficit target at 3.3% of GDP for FY19 in the recent Union Budget, the International Monetary Fund welcomed the move saying that India is returning to the path of gradual fiscal consolidation. Earlier, IMF had said that India could grow at 7.4% in 2018, as against China’s 6.8 per cent, making it the fastest growing country among emerging economies after last year’s growth slowdown caused by structural reforms such as demonetisation and GST. Gerry Rice, IMF Director of Communications Department told reporters at at his fortnightly news conference that IMF welcomes the FY fiscal year 2019 budget targets and the target for a fiscal deficit of 3.3 per cent of GDP. “Thus, returning to the path of gradual fiscal consolidation while keeping in mind the need to provide support to the nascent economic recovery in India,” Gerry Rice said. We take a look at three key takeaways from the development.

Target in line with IMF recommendations

Gerry Rice of IMF says that the budget’s target of fiscal deficit was in line with IMF staff recommendations. Finance Minister Arun Jaitley on February 1 fixed the fiscal deficit target for the fiscal year 2018-2019 at 3.3%, higher than previous year’s 3.2% target citing shortfall in non-tax revenue due to deferment of spectrum auction. Notably, Arun jaitley has also revised the fiscal deficit for the fiscal year for 2017-2018 upwards to 3.5% as against targeted 3.2%, which in absolute terms was about Rs 5.95 lakh crore. 

Ambitious tax revenue target

According to Gerry Rice, India’s budget assumes that the tax revenue will rise faster than the value of transactions in the economy. “So it’s ambitious, as it assumes the government will be able to collect higher tax revenue from the same amount of consumption and income,” Gerry Rice said.  Arun Jaitley recently said that under the GST, the accounting process changed, and the government had to calculate 12 months of expenditure and only 11 months of revenue under the GST, leading to fiscal slippages for FY18. In Budget 2018,  the government has revised GST revenue estimate to Rs 21.57 lakh crore from Rs 21.47 lakh crore earlier. “There are also some initiatives in the budget that are presently unfunded and the fiscal implications of these we need to look at a bit more closely as more details become available,” Gerry Rice noted.

Capex needed for medium term growth

The IMF is looking closely at these potential slippages on the fiscal deficit front, which can be caused wither on the revenue side or higher outlays on these new policy initiatives by the government, as they could result in cuts to capital expenditures, which it feels are important to support medium- term growth. Gerry Rice notes that the budget focuses on rural, healthcare and social welfare issues. “And the government has proposed offering farmers a minimum support price of 1.5 times cost of production, and as you say, the budget speech also announced a flagship national healthcare scheme of Rs 0.5 million annually to cover 500 million beneficiaries,” said Gerry Rice.

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