Govt may go easy on fiscal deficit target: Official

Govt may go easy on fiscal deficit target: Official

(Representational Image)

With the economy grappling with a slowdown, Budget 2019-20 may relax the fiscal deficit target as the government wants to spur growth, a senior government official told Moneycontrol.

"There's no way to deny a slowdown anymore. Tax collection targets are also unrealistic. In such a situation, the government may relax its fiscal deficit target to generate growth," the official said. 

READ: Know your budget: What is fiscal deficit?

Narendra Modi, since his beginning as the Prime Minister, he succeeded in improving public finances, trimming the fiscal deficit to 3.4 per cent of gross domestic product (GDP) from 4.5 per cent in 2013/14, mostly through subsidies cuts and fuel taxes.

Even so, the big-ticket projects such as the Rs.75,000-crore Pradhan Mantri Kisan Samman Nidhi (PM KISAN) scheme, have stretched the expenditure, along with shrinking tax collections have led to the widening of fiscal deficit.

"If you want to adhere to the fiscal consolidation path, there will be no option to loosen your purse strings. But with tax collection targets not going as desired, rural consumption being hit, industrial activities feeling the heat, to revive the economy, spending needs impetus," the official told Moneycontrol.

Although, now the focus has shifted on making good of the election promises.

This implies that the fiscal deficit target set in the February 2018 budget with 3.3 per cent of GDP, needs to be revised upwards from an already upwardly revised target of 3.4 per cent of GDP.

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"No number has been fixed yet. That will be decided only after consultations with the Prime Minister's Office, which are already underway," the official said.

On June 22, Prime Minister Narendra Modi discussed key issues facing economy and suggestion to meet challenges with top 40 economists of the country.

The growth in GDP was the slowest since 2014-15. The focus areas of the interaction with economists and industry experts among many were the further opening of banking and insurance sectors for foreign direct investment, speeding up the disinvestment process and management of water resources.

From 9.5 per cent in the manufacturing sector grew by 3.1 per cent in January-March 2019. For the whole year, the manufacturing sector stood at 6.9 per cent in 2018-19 from 5.9 per cent in 2017-18.

India's GDP increased to 5.8 per cent in January-March, and 6.8 per cent in 2018-19, according to official data released in May, confirming fears of a slowdown.

Factory output, measured by the index of industrial production (IIP), contracted in March 2019, the first time in 21 months. This shows a decline in the momentum of both investment and consumption. Even production of steel, electricity, coal and cement are falling or have been stagnant in recent quarters.

With GDP growing 6.6 per cent in October-December 2018, indications of an economic slowdown have been visible.

The Reserve Bank of India (RBI), in its bi-monthly policy review earlier this month, lowered its GDP growth projection for the current financial year to 7.0 per cent (6.4-6.7 per cent in the first half and 7.2-7.5 per cent in the second half) from 7.2 per cent.

The national income data have reinforced deceleration signs that were emanating from a slew of shop-end data, such as car and consumer goods sales, often seen as proxy indicators to gauge trends in household spending.

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