Jaitley sticks to fiscal prudence

index.jpgSource: Business Standard, Feb 02, 2017

New Delhi: Finance Minister Arun Jaitley has chosen to deviate marginally from the path of fiscal consolidation by budgeting the fiscal deficit for 2017-18 at 3.2 per cent of GDP against the target of 3 per cent set under the existing Fiscal Responsibility and Budget Management (FRBM) framework.

This, however, marks a steady improvement in the fiscal deficit over the last four Budgets that Jaitley has presented, from 4.1 per cent in 2014-15.

Jaitley has signalled the government’s commitment to fiscal consolidation, creating at the same time fiscal space to boost spending to lift the economy reeling from demonetisation and slower private sector investment. In absolute terms, the fiscal deficit for 2017-18 stands at Rs 5.46 lakh crore, up from Rs 5.34 lakh crore in 2016-17.

Though Jaitley has said that he has refrained from using the “escape clause” provided by the N K Singh committee on the new fiscal framework, the 3.2 per cent target falls well within limits prescribed by the committee.

The expert panel headed by former revenue secretary N K Singh has suggested a new fiscal framework that has recommended bringing down the debt-to GDP ratio to 60 per cent by 2023 — 40 per cent would be the Centre’s and 20 per cent the states — and maintaining fiscal deficit at 3 per cent of GDP for the next three financial years.

The committee has allowed a leeway of 0.5 per cent of GDP for the deficit, by clearly identifying the triggers and including unavoidable fiscal situations. At present India’s debt-to-GDP ratio is at 66 per cent, which is higher than that of its emerging market peers.

For the purpose of calculations, the Budget has assumed nominal GDP to grow at 11.75 per cent in FY18. Given that the Economic Survey released yesterday projected real GDP to grow between 6.75 and 7.5 per cent in FY18, this implies an inflation range of 4.25 to 5 per cent in FY18.

At the same time, the government appears to have been overly cautious on revenue projections.

Gross tax revenue is forecast to grow at 12.2 per cent in FY18 to Rs 19.1 lakh crore. In FY17, it grew 17 per cent. On the other hand, non-tax revenues are budgeted to contract by 13.7 per cent in FY18, after growing at 33.2 per cent in FY17. Presumably, the contraction reflects the absence of revenue from telecom auctions.

Total government expenditure is budgeted to grow at a slower pace at 6.6 per cent in FY18, after growing 12.5 per cent in FY17. The three major government subsidies namely — food, fuel and fertiliser — are now budgeted to grow at 3.28 per cent in 2017-18 to Rs 2.4 lakh crore.

Food subsidy has been budgeted to grow to Rs 1.45 lakh crore in FY18, up from Rs 1.35 lakh crore the year before. Petroleum subsidy is forecast to decline marginally to Rs 25,000 crore in FY18 from Rs 27,532 crore the year before, while the fertiliser subsidy is budgeted to remain at Rs 70,000 crores.Spending on 28 core social sector schemes is budgeted to grow at 13.45 per cent in FY18 to Rs 2.8 lakh crore, up from Rs 2.46 lakh crore in FY17.

The revenue deficit for FY18 has been pegged at 1.9 per cent compared to 2.1 per cent in 2017.



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