Notwithstanding the uncertain global economy and ballooning wage and pension bill for civilians and defence staff, the government decided to adhere to the 3.5% fiscal deficit target for 2016-17 projected earlier as part of the fiscal consolidation exercise.
For the current fiscal year, the fiscal deficit — a measure of how much the government borrows to fund its expenses — will be 3.9%.
In his budget speech on Monday, finance minister Arun Jaitley assured that the government’s development agenda will not be compromised. He also announced setting up of a committee to review the Fiscal Responsibility and Budget Management (FRBM) Act.
With the prevailing volatility and uncertainty in the global markets, there was need to review the act, he added.
The government’s total expenditure in 2016-17 is estimated at Rs 19.78 lakh crore, of which Rs 5.50 lakh crore will be directed towards plan expenditure. The remaining Rs 14.28 lakh crore will go towards non-plan expenditure. According to the fiscal consolidation roadmap, fiscal deficit has to be brought down to 3% in 2017-18.
The revenue deficit for the current fiscal year has been improved to 2.5% of GDP from the budgeted 2.8%.
The committee which will review the FRBM Act will work with state governments to do away with the distinction between plan and non-plan expenditure.
The government will have to provide Rs 1.10 lakh crore in the next fiscal year for the implementation of the recommendations of the 7th Pay Commission and the One Rank One Pension (OROP) scheme.
The Economic Survey presented on Friday argued that adhering to the 3.5% fiscal deficit target for 2016-17 would maintain “credibility” of the government. However, meeting the target would be challenging, it added. “There are very good arguments for a strategy of aggressive fiscal consolidation... and equally good arguments for a strategy of moderate consolidation that can place the debt on a sustainable path while avoiding imparting a major negative demand shock to a still-fragile recovery.”
In the current fiscal year, softening of crude prices, which are hovering at record low levels, have come in handy for the finance minister in balancing the budget and getting the fiscal math right.
According to the budget proposals, subsidies on food, fertiliser and petroleum have been estimated at Rs 2.32 lakh crore for 2016-17. The subsidy bill for 2015-16, according to the revised estimate, is Rs 2,41,856.58 crore.