Breaching the fiscal deficit mark

Fiscal deficit targets have been consistently missed in the last three years. Expect this year to be no different if growth doesn't recover

Published: Feb 1, 2020 06:23:14 PM IST

Updated: Feb 1, 2020 06:29:21 PM IST

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

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The last three financial years have consistently seen the government resort to deficit financing to balance its books. Every year, it first comes up with an estimate of this deficit and then revises it (upwards) at the end of the year.

This fiscal was special because growth collapsed and with it tax collections that fund the government’s spending. As a result, there was a wide gap between the Budget estimate of 3.3. percent for the 2019-20 fiscal deficit and the actual number of 3.8 percent.

For 2020-21, the budgeted estimate at 3.5 percent looks more credible than 2019-20’s as nominal GDP growth has been estimated at 10 percent. The Economic Survey also estimated nominal growth to come in at 10 percent. This means that for now, estimated tax revenues for the next fiscal are not that wide off the mark. Still, with the uncertainty in global growth and the fact that the third quarter GDP for 2019-20 was at 7.5 percent, there is every chance that the 3.5 percent deficit number could also be revised upwards.