Revenue respite for Modi ahead of polls; govt meets 3.4% fiscal deficit target

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April 09, 2019 5:12 PM

The task was challenging given till January 2019, the government had not only surpassed the full year fiscal deficit target but had exceeded it by 21.5 per cent.

The Narendra Modi-government has managed to meet its target to limit fiscal deficit to 3.4% of GDP in the just concluded financial year 2018-19, even amid shortfall in GST collections and signs of slowdown in the economy. The news would surely come as a respite for the ruling party BJP, which is facing Lok Sabha election 2019, beginning this week.

The government has been able to meet the fiscal deficit target on the account of cuts in state spending and higher borrowings from small savings funds, Reuters reported citing a government source. Although the expenditure cuts in the fund allocations to different ministries remain unknown yet, the government seems to have managed to scrape through whatever headroom it had to contain the fiscal spend.

The task was challenging given till January 2019, the government had not only surpassed the full year fiscal deficit target but had exceeded it by 21.5 per cent.

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 ₹80,000 crore) raised as part of its disinvestment programme for FY18-19 might have also contributed to bridge the shortfall. However, given that the government missed the tax collections target by over Rs 1 lakh crore rupees, including about Rs 50,000 crore shortfall in income tax receipts, it was not easy for the government not to breach the limit, according to the official.

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

The government in its interim budget 2019 revised the fiscal deficit upwards from 3.3 per cent to 3.4 per cent for the fiscal year and set the same target for the FY20.

A fiscal deficit on the account of high capital expenditure is better than being on the account of revenue deficit as capital expenditure is incurred to create long-term assets such as factories, buildings and other development, which help raise productivity in the economy.

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