Although the Government of India had estimated the fiscal deficit target at 3.3% during the Interim Budget FY 2019-2020, the government had reset the fiscal deficit target to 3.8% of the GDP. The government has set the fiscal deficit target for 2020-2021 at 3.5% of the GDP. This is a lower figure as compared to the revised estimate of 3.8% in 2019-2020.
The Union Budget for FY 2020-21 - Fiscal Deficit Target Revised
The Finance Minister, Nirmala Sitharaman, had said that the government is now looking to achieve a fiscal deficit target of 3.5% in 2020-2021. She also added that she is not expecting any changes in this figure. This will be done by boosting revenue. She said that when it comes to revenues, the indirect taxes have been estimated to be Rs.10,96,520 crore in 2020-21.
She had added that the government receipts for FY21 has been estimated to be Rs.22.46 lakh crore and the expenditure has been set at Rs.30.42 lakh crore. Nirmala Sitharaman had said that the debt of the central government has reduced from 52.2% to 48.7% of GDP in the year, 2019.
According to her, the central government’s revenue generation this year will improve because of the closing of all loopholes in the indirect goods and services tax scheme.
The Union Budget for FY 2018-19 - Fiscal Deficit Target Revised
The Union Budget for the financial year, 2020-2021 was presented by Finance Minister, Nirmala Sitharaman on 1 February 2020. This was to herald a new age of growth in the nation. The budget threw light on the financial sector and governance for enhancing the ease of living. The budget holds on to the aspiration of delivering governance with minimum government and has the vision to create an efficient digital revolution, inclusive growth and structural reforms.
The 2020 Union budget had been presented in a backdrop of a slow Indian economy and the estimated GDP growth for 2019-2020 had reached an 11-year low of 5%. A lot of factors like the IL&FS crisis and international market problems like the China-U.S. trade war have been catalysts to this slowdown.
Union Budget 2020-2021 Expectations
The Union Budget FY 2020-2021 was based on three major themes- Aspirational India, Economic Development and Caring Society.
The nation’s fiscal deficit had settled at 3.8% during the FY 2019-2020 and has been set at 3.5% for 2020-21. The Finance Minister, Nirmala Sitharaman had said that for 2019-2020, the fiscal deficit had been estimated at 3.3% during her Union Budget speech. A dip in the nominal growth for FY20 to 7.5% from an estimated figure of 11%, had led to the budget gap to widen.
The new and revised Fiscal Responsibility and Budget Management Act will allow the central government to get an ‘escape clause’ of 0.5 percentage points. The clause can be invoked during a period of structural changes in the Indian economy or even at a time where there is a steep fall in growth. Invocation of the clause will lead the way for the Reserve Bank of India (RBI) to buy government bonds through primary auctions.
The decision to maintain the fiscal deficit at 3.8% for the current financial year means that the aim to reduce the country’s fiscal deficit to 3% has been pushed back. As per the central government’s medium-term fiscal policy statement, the goal was supposed to be achieved during 2020-2021. This goal has now been deferred to 2023-2024 (at least). The fiscal policy statement now shows a fiscal deficit at 3.3% of the GDP for 2021-2022. The fiscal deficit for 2022-2023 is 3.1%.
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