Mission Impossible: How Modi government met fiscal deficit target against odds

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Updated: April 11, 2019 12:31 PM

The news comes as a big relief for the ruling party BJP, which is facing Lok Sabha election 2019 and will likely be judged on these parameters.

A huge respite to Modi government ahead of the Lok Sabha polls 2019 has come from meeting the fiscal deficit target of limiting it to 3.4 percent for the fiscal year 2018-19. With a shortfall in GST collections and slowdown faced by the economy, meeting the target looked difficult.

Moreover, the government also missed the tax collections target by over Rs 1 lakh crore rupees, including about Rs 50,000 crore shortfall in income tax receipts. With this, in January 2019, the government had not only surpassed the full year fiscal deficit target but had exceeded it by 21.5 per cent.

However, despite these challenges, the government has been successful in attaining its revised fiscal deficit target of 3.4 percent for the fiscal year 2018-19 on the account of cuts in state spending and higher borrowings from small savings funds.

Further, the Rs 28,000 interim dividend provided by the Reserve Bank of India to the government and Rs 83,523.14 crore (more than the targeted Rs 80,000 crore) generated as disinvestment proceeds might have also contributed to bridge the shortfall.

The news comes as a big relief for the ruling party BJP, which is facing Lok Sabha election 2019 and will likely be judged on these parameters.

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Fiscal deficit is the difference between total revenue and total expenditure of the government and is an indication of the total borrowings required by the government. It is an important parameter to gauge the government’s overall performance and the sustainability of growth in the future.

In the interim budget 2019, the government has set the same target of 3.4 per cent for the next fiscal year 2019-20. However, given the higher spending announced in the budget and low revenue growth, it remains a challenge for the government to meet it in FY19, according to Moody’s Investors Service.

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