Budget 2020 may push back fiscal deficit MTFP target

The fiscal deficit for FY20 and its roadmap for FY21 could be heading towards a recalibration with the February Budget slated to hint at the targeted 3 per cent fiscal deficit for the next financial year be pushed to 2022-23, people associated with the developments said.

“Fiscal deficit roadmap and numbers are likely to be revised for current and next fiscal. Budget is likely to announce the recalibration of the 3% fiscal deficit target for FY21 as estimated under the Medium Term Fiscal Policy (MTFP) to be pushed to 2022-23 instead of 2020-21 and for FY20, the target of 3.3% could now be touching 3.8%.The fiscal deficit for 2020-21 could now be expected at 3.9%-4%”, sources said .

This is because there is no support from disinvestment and tax revenues, all falling behind target and it would be optimistic to expect they would substantially improve in FY21, sources said.

Also the government does not want to give any signal of an over-optimistic macro position and ambitious futuristic data on tax and fiscal deficit since it is facing transparency and accuracy issues of these figures. Any over-optimistic macro projection will not be backed by the current economic performances as reflected by the core sector Index of Industrial Production (IIP) (who are lagging), inflation, Reserve Bank of India (RBI) and National Statistical Office (NSO) projections apart from a host of global agencies like the International Monetary Fund (IMF), World Bank and the Asian Development Bank (ADB), sources said.

Without Bharat Petroleum Corporation (BPCL) and Air India, the disinvestment target of Rs 1,05,00 cr has come down to just Rs 18,000 crore. The November tax revenue shows that only 46 per cent of the Rs 16.50 lakh crore net tax revenue target has been achieved, while it is ruled out that the remaining could be achieved in four months, said people in the know.

An economist with a leading public sector bank said the government can no longer just say fiscal deficit targets are met and there is no excess gap between expenditure and revenue. If they do so with the macro pointers not backing those claims, an accuracy and credibility issue will arise.

With the sharp moderation in growth, industry has also demanded an expansionary fiscal policy.

“The time has come to adopt an expansionary fiscal policy. Just like our medium-term inflation target range, we can have a Flexible Fiscal Policy target which will set a central target for the fiscal deficit with a range of around 0.5% to 0.75%. The additional availability of funds may be spent on key infrastructure projects which can be implemented quickly. This is likely to have a significant multiplier effect on the economy”, Uday Kotak, President-Designate, CII, said in the CII Budget presentation, adding that in subsequent years there can be a glide path to converge to the Fiscal Responsibility and Budget Management (FRBM) trajectory over a 2-3-year time frame.

As per the medium term fiscal policy cum fiscal policy strategy statement tabled in Parliament, the government is aiming to contain the fiscal deficit at 3.4 per cent in the current as well as the next fiscal, and then bring it down to 3 per cent in 2020-21.

But the government has been categorically denying any move to lower the target of fiscal deficit for the current financial year. In November the government stated that it does not intend to revise its fiscal deficit target of 3.3 per cent of gross domestic product (GDP) for the current financial year despite the slowdown in economic activities. Minister of State for Finance Anurag Thakur said “NO” in a written reply in the Rajya Sabha to a query if the government intends to revise the fiscal deficit target in view of the economic slowdown.-IANS News