Union Budget 2018: Govt misses fiscal deficit target, FY18’s pegged at 3.5%
The target has been fixed at 3.3% for 2018-19 as against the Fiscal Responsibility and Budget Management Act target of 3%.Updated: Feb 02, 2018 00:35 IST
Finance minister Arun Jaitley has set the fiscal deficit target for 2018-19 at 3.3% of the gross domestic product (GDP) to accommodate higher demand for expenditure against the earlier target of 3%.
The government also revised the deficit target for the year ending in March 2018 to 3.5% of GDP from the targeted 3.2%.
In his last full budget, Jaitley also accepted key recommendations of the NK Singh Committee on fiscal discipline to reduce debt-to-GDP ratio to 40% by 2024-25 from 50.1% in 2017-18 and has introduced amendments to the present Fiscal Responsibility and Budget Management Act.
Read highlights of the Union budget here
The government now aims to reduce its debt-to-GDP ratio to 48.8% in 2018-19, 46.7% in 2019-20 and 44.6% in 2020-21, while fiscal deficit as a percentage of GDP is targeted to be reduced to 3.3%, 3.1% and 3%, respectively during the same period.
The government also marginally increased its borrowing programme to Rs 6.06 trillion for the next fiscal from Rs 6.05 trillion in the current fiscal year.
With further deferment of the 3% fiscal deficit target, Jaitley has revised the fiscal consolidation glide path for three successive years.
While the budget estimate of fiscal deficit for 2017-18 was 3.2% of GDP, the revised estimate is now 3.5%, the same as 2016-17.
The government achieved the fiscal deficit target of 3.5% of GDP after cutting down capital expenditure by Rs 36,000 crore in 2017-18. A shortfall of Rs 50,000 crore on account of GST forced the government to revise its fiscal deficit target.
However, the more worrying aspect is that the government’s revenue deficit shot up to 2.6% of GDP in 2017-18 from the budget estimate of 1.9% of GDP, showing signs of the deteriorating quality of fiscal consolidation. This is also due to Rs 1.1 trillion increase in revenue expenditure during the year.
Jaitley attributed the slippage to the government receiving GST revenue for 11 months in 2017-18 (a shortfall of Rs 50,000 crore) and facing a shortfall in non-tax revenue due to lower receipts from spectrum auction.
Part of the shortfall was met through higher direct tax collections and disinvestment, Jaitley said. The government hopes to breach the disinvestment target in 2017-18 by collecting Rs 1 trillion against the budget estimate of Rs72,500 crore. For 2018-19, the government has set a disinvestment target of Rs 80,000 crore, including gains from privatisation of Air India Ltd.
The government has assumed GST collections will grow by 67% to Rs 7.4 trillion in 2018-19 while it has targeted a humble 4% growth in non-tax revenues to Rs2.4 trillion after it failed to achieve the target in the previous year.