Government is keen to meet FY18 deficit target

• The government is keen on sticking to the fiscal deficit target for the year and will look for ways to make up for any revenue shortfall that could hinder this plan. The thinking at the highest level of the government is that the fiscal deficit target of 3.2% of GDP for FY18 should be met, though there can be some relaxation in the consolidation roadmap beyond that.
• There have been preliminary discussions on the issue but a final call will only be taken after the revenue position becomes clearer post Dec 17. The government has met budget targets in the last three years, which has helped establish budget credibility, something that it does not want to compromise.
• Following a slump in growth in 3Q17 to a three-year low, there had been speculation about a fiscal stimulus package aimed at boosting the economy but that’s abated amid signs of revival.
• Besides, fiscal slippage at this time won’t sit well with inflation set to accelerate and the current account deficit, though manageable, beginning to deteriorate Finance minister Arun Jaitley said
• There had been concerns over the fiscal deficit running ahead of the trend halfway through 2017. While that has eased somewhat, the government will find it difficult to stay within target with uncertainty over some revenue items. The dividend from the Reserve Bank of India at INR306.59bn is well below what was budgeted (INR580bn).
• There is uncertainty over spectrum realisation with the telecom sector struggling and tax revenues uncertain with the rollout of the goods and services tax (GST) on Jul 17.
• At the end of Sep 17, the fiscal deficit was 91.3% of that budgeted for FY18, well ahead of 83.9% at the same time in 2016.
• The NK Singh committee had suggested a new fiscal consolidation focus on government debt rather than the fiscal deficit. It suggested a total government debt of 60% of GDP by FY23 and provided fiscal goalposts to attain this target. It suggested a fiscal deficit of 3.0% for FY18 through FY20. It has allowed a deviation of 0.5% of GDP in a year under three conditions, one of them being the structural reforms cited above.
• GST disruption would qualify as one such reform. If the government uses this relaxation next fiscal, it will mean a fiscal deficit target of 3.5% of GDP, instead of 3.0%. The government is expected to take a view on the report soon.

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