Fiscal Deficit : Interim Budget

The present government headed by Prime Minister Narendra Modi presented an uncompromising stance on fiscal deficit in the beginning. In its first budget, the government had stated that “we cannot go on spending today which would be financed by taxation at a future date”. The government emphasised on “inter-generational equity” and not leaving behind “a legacy of debt for our future generations” highlighting its commitment for adhering to the fiscal deficit norms.

Change in Stance

There was a deviation from this uncompromising stance on Fiscal Deficit during the second half of the government’s tenure:

  • The fiscal deficit for 2017-18 deepened from the targeted 3.2% to 3.5% of GDP.
  • The interim Budget has put the fiscal deficit target for 2018-19 at 3.4% of GDP, marginally higher than the budgeted 3.3%.
  • The targets under the Fiscal Responsibility Management Act also saw a revision over the years with the original 3% target set for 2016-17 now being pushed to 2020-21.

The Medium Term Fiscal Policy-cum-Fiscal Policy Strategy Statement has attributed the fiscal slippage in the last two years mainly on the lower-than-projected revenues from GST and the government having to provide support to farmers on account of low crop prices. The critics attribute these fiscal slippages to aftermath impacts of the twin shocks of demonetisation and GST.

The policy further states that the accrual of the full benefit of GST reforms and revenues is expected to take some more time and the stabilisation phase is expected to continue in 2019-20 too. Further, the full fiscal impact of the income support scheme for farmers will also be felt in 2019-20.

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