Fiscal Deficit & Union Budget 2018-19

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The fiscal deficit will overshoot to 3.5% from the earlier estimate of 3.2% in the current fiscal, ending March 31, Finance Minister Arun Jaitley said presenting the Budget in Lok Sabha. While the critics flagged it questioning the government on fiscal consolidation, global rating agency Moody’s said the fiscal deficit projection of 3.3% is in line with its forecast and the target will be achieved.

The target has been fixed at 3.3% for 2018-19 as against the Fiscal Responsibility and Budget Management (FRBM) Act target of 3 percent.


Expressing the government’s commitment to bring down the fiscal deficit, Jaitley said in his Budget speech that he has endeavored to bring down the fiscal deficit from 4.1 percent in 2014-15 to 3.9 percent in the following year and further to 3.5 percent in 2016-17.

The fiscal deficit has a bearing on sovereign rating of the country as well as the debt market.

The panel headed by former Revenue Secretary NK Singh had recommended debt to GDP ratio of 60% by 2023 and fiscal deficit at 3% for next 3 years.

However, senior Congress leader P Chidambaram flagged the issue, saying it will have serious consequences.

The former finance minister said the fiscal deficit limit of 3.2 percent in 2017-18 had been breached and was estimated at 3.5 percent.

“The finance minister fails the fiscal consolidation test and this failure will have serious consequences,” Chidambaram told PTI soon after the finance minister completed his budget speech.

Meanwhile, global rating agency Moody’s said the fiscal deficit projection of 3.3 percent for FY19 is in line with its forecast and the target will be achieved.

“The direction of fiscal deficit announced in the Budget is in line with our forecast. We expect that fiscal deficit targets will be broadly achieved,” Moody’s said in a note today.

A slower broadening of the tax base after the note-ban and GST implementation as well as weather related impacts on crops could contribute to revenue slippage, it warned.

“Conversely, rapid rise in the number of taxpayers, albeit from a low base, could contribute to revenue growth more significantly than we currently expect,” Moody’s said.

The agency expects the somewhat larger deficit than initially budgeted for fiscal 2018, at 3.5 percent. This outcome, however, does not alter the longer-term trend towards fiscal consolidation, it said.

Credit: Rajya Sabha


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