A finance ministry official tweeted today morning that India is likely to achieve its fiscal deficit target of 3% by 2019-20. The tweet by Subhash Chandra Garg, secretary of the Department of Economic Affairs, stated that the ministry has a statutory commitment to bring down the fiscal deficit to 3% by 2020-21, and this could be possible even by 2019-20 itself.
The original estimate for fiscal deficit was 3.2% of the GDP for the fiscal year 2017-18. In the recently announced Union Budget 2018, the government reported a marginal slippage in fiscal deficit. Fiscal deficit for the current fiscal year stands at 3.3%. For fiscal year 2018-19, the estimated fiscal deficit is 3.5%.
The implementation of the Goods and Services Tax (GST) is considered to be one of the main reasons behind this slippage. Economic growth of the country slipped in the current fiscal year when the manufacturing sector slowed down following the impact of demonetisation and GST. Despite the slowdown in the current fiscal year, signs of recovery can already be seen.
Fiscal Deficit at 3.3% for 2018-19, backed with statutory commitment to bring it down to 3% by 20-21 (might actually be achieved in 19-20) and further supported with a commitment to bring down debt to GDP ratio to 40% by 2024-25 is truly strong fiscal consolidation plan.
— Subhash Chandra Garg (@SecretaryDEA) February 5, 2018
The overall expenditure for fiscal year 2018-19 was estimated to be around Rs.24.42 lakh crore. This represents a significant increase from last year’s value of Rs.21.57 lakh crore. Revenue estimates have also been increased for the fiscal year 2018-19 owing to increase in both direct and indirect taxes.
Higher expenditure in Union Budget 2018 can be attributed primarily to the allocation for rural development and infrastructure sectors. Considering the higher allocation for various sectors, the fiscal deficit for 2018-19 is estimated higher than that of the previous year’s budget.
Though the fiscal deficit estimate has been increased for the upcoming fiscal year, the government is optimistic that the growth witnessed through higher allocations will benefit the country’s economy. With higher growth, the government expects to narrow down the fiscal deficit in the subsequent years.
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