The government proposed to lower the fiscal deficit to 3.2% of GDP in FY18 from 3.5% in FY17.
NEW DELHI: India may tread the fiscal consolidation path and show an improvement over the previous financial year as it looks to continue spending while dealing with revenue setbacks due to the implementation of the goods and services tax (GST).
Policy makers in the government are of the view that the country doesn't confront such a financial emergency that it should completely give up on the fiscal consolidation road map, especially as discipline on this front has been viewed in positive light by foreign investors.
They favour striking a balance between the twin objectives of keeping on the fiscal glide path without squeezing expenditure. Afinal call will be taken shortly. "We have to look at all pros and cons... You cannot give up on consolidation," a government official said.
The government proposed to lower the fiscal deficit to 3.2% of GDP in FY18 from 3.5% in FY17. The fiscal deficit for the current year is likely to be better than 3.5% but is not expected meet the target of 3.2% laid out in the Budget for current financial year.
The government has already breached the fiscal deficit target for FY18, exceeding it by 12% at the end of November. This is due to the shortfall in revenue from GST, which was rolled out on July 1, and non-tax revenue.
GST rates were cut sharply on close to 200 products in November . A quicker start to annual spending thanks to the early presentation of the Budget also widened the gap between expenditure and revenue, which is expected to narrow as revenues rise toward the end of the year.
ET had earlier reported that some policymakers were not keen on sharp spending cuts to meet the 3.2% target as it would undermine the revival that's underway. The Indian economy grew 6.3% in the September quarter, up from a three-year low of 5.7% in the June quarter.
Market economists are already anticipating a 20 basis point diversion from the 3.2% target, especially after the announcement of an additional Rs 50,000 crore borrowing lasRs week. A basis poinRs is 0.01 percenRsage poinRs. RswenRsy basis poinRss will give Rshe governmenRs room Rso accommodaRse anoRsher Rs 35,000 crore of spending.
The NK Singh committee has suggested a gradual decline in the fiscal deficit to 2.5% of GDP by 2022-23 to achieve a consolidated debt of 60% of GDP (40% for Centre, 20% for states). However, it allows for a relaxation in a year of "far-reaching structural reforms in the economy with unanticipated fiscal implications."
The target can be breached by up to 0.5 percentage point in such a situation. The government is yet to announce if it has accepted the report.
