The Fiscal Responsibility and Budget Management (FRBM) Committee has recommended that the Centre’s revenue deficit should just be 30 per cent of fiscal deficit by the completion of its six-year roadmap ending 2023, Business Standard has learnt. This is markedly different from the existing fiscal roadmap which envisages completely eliminating revenue deficit, something which successive finance ministers have failed to do.
As per budget 2017-18 documents, revenue deficit for the coming fiscal year, at Rs 3.21 lakh crore, is projected to be nearly 59 per cent of the budgeted fiscal deficit target of Rs 5.47 lakh crore. The revised revenue deficit target for 2016-17 of Rs 3.11 lakh crore will come in at 58 per cent of the revised fiscal deficit of Rs 5.34 lakh crore.
Fiscal deficit is the difference between total expenditure and total revenue of the government for any given year. Revenue deficit excludes the government’s capital spending from that equation and essentially denotes how much more the centre spends on administrative and operational expenditure than what it earns through all sources.
A zero revenue deficit is a situation wherein the government spends all that it earns on operational and administrative expenditure and borrows from markets for capital expenditure. Senior sources aware of the FRBM panel’s recommendations say that the ‘utopia’ of zero revenue deficit is unachievable and may even be detrimental in a way.
“Zero revenue deficit cannot be done. It is impossible given the size of a country like India which depends so much on government schemes for social sector and agriculture, especially in rural areas,” said an official. “The FRBM panel has recommended that revenue deficit should be 30 per cent of fiscal deficit by the end of its proposed roadmap,” the person added.
As reported earlier, the FRBM panel’s report, which sets a roadmap to achieve a fiscal deficit of 2.5 per cent of gross domestic product by 2023, could be made public before March 9, the day Parliament reconvenes for the second half of the budget session.
Business Standard had also reported earlier that the panel has suggested setting up of a fiscal council to oversee and verify the credibility of the government’s budget numbers and fiscal targets for any given year. While the political leadership in the centre is said to be comfortable with the idea, the bureaucracy is reportedly dead against it.
The panel had in its report recommended a fiscal deficit target of 3 per cent of 2017-18 to 2019-20. In his budget speech, Jaitley said that the centre is targeting 3.2 per cent for 2017-18 but will likely maintain 3 per cent in 2018-19 and 2019-20.
The committee is headed by former member of Parliament and revenue and expenditure secretary N K Singh. Its other members include Former Finance Secretary Sumit Bose, RBI governor Urjit Patel, Chief Economic Advisor Arvind Subramanian, and Rathin Roy, director of National Institute of Public Finance and Policy.
