Fiscal discipline not junked, govt aims at 4.5% deficit by 2025-26

NEW DELHI: The government will continue on its path of fiscal consolidation and intends to reach a fiscal deficit of below 4.5% of gross domestic product (GDP) by 2025-2026, finance minister Nirmala Sitharaman said in her budget speech.
The government expects a fairly steady decline over the years. “We hope to achieve the consolidation, first, by increasing the buoyancy of tax revenue through improved compliance and, secondly, by increased receipts from monetisation of assets, including public sector enterprises and land,” Sitharaman said as she pegged the fiscal deficit for the current fiscal year at 9.5% of GDP in the revised estimate.
The Centre has estimated the deficit to be at 6.8% of GDP next year and the gross borrowing from the market next year would be around Rs 12 lakh crore.

The government has said that its fiscal policy continues to be guided by the principle of a gradual reduction of deficit and progressive movement towards fiscal consolidation.
“The government is fully cognizant of the need to maintain a tight fiscal plan. However, any fiscal inflexibility to meet the FRBM (fiscal responsibility and budget management) target would not be advisable in the light of the envisioned socio-economic growth and prosperity of the nation amid the continuously changing domestic and global scenarios and challenges. In the current context, a need for higher public spending is felt crucial for providing required impetus to economic growth,” the finance ministry said in its medium term fiscal policy cum policy strategy statement.
However, global ratings agency Moody’s Investors Service expressed doubts about the government’s ability to achieve the tax and monetisation targets and pointed to the need to spend on key sectors.

“India’s new central government budget deficit target of 6.8% tries to strike a balance between supporting growth and a modest deficit reduction, but improvements in tax compliance and monetisation targets may be difficult to achieve. At the same time, the government has limited room to reduce spending without further weakening growth, and nominal GDP growth will remain critical for future deficit reduction,” Moody’s said.

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