Union Budget 2018-19 Update- Fiscal Deficit Target Revised

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The Union Budget for FY 2018-19, presented on 1st February 2018 by Finance Minister Arun Jaitley, has created a buzz in the finance market. The budget was expected to balance the fiscal prudence on one hand and emphasis on the need for the fiscal impetus to create a growth opportunity for rural India on the other. The focus of the entire country was shifted to the Union Budget and speculations were rife with increasing expectations towards fiscal reforms and consolidations.

Since the budget is the last complete budget of the current government, it was expected to consolidate the fiscal deficit in the country while boosting growth by facilitating public capex or opting for populist measures. To be precise, as per the economists, the FY19 Union Budget was likely to resolve the fiscal slippage for fiscal 2017-18 at 3.2% of GDP (Gross Domestic Product) and 3% for fiscal 2018-19.

Now, with the declaration of the budget today which laid immense emphasis on the development of the rural and agricultural sector in India while containing the deficit, it is time to assess the budget outcome in the light of the expectations.

Union Budget 2018-19 Update on Government’s Fiscal Target

Breaching the fiscal deficit target of 3% for fiscal 2017-18, the committed target of fiscal 2018-19 is revised to 3.3% of the GDP in Union Budget 2018-19. Along with this, the glide path of fiscal consolidation has also been revised for 3 consecutive years. While the estimated fiscal deficit budget for fiscal 2017-18 was 3.2% of the GDP, now after the declaration of the new budget, the revised estimated target is 3.5% of the GDP, which is similar to that of the financial year 2016-17. Apart from that, the government will also be targeting on reducing the debt-to-GDP ratio to 40% from the present ratio of 49.4%. As confirmed by Jaitley, the fiscal slippage will continue to remain the key area of operation for the government.

While stating the reason for the revision of target, in his budget speech Arun Jaitley said that this revision of the target is due to the shortfall of revenue resulting from GST for 11 months in 2017-18 and also due to a shortage in non-tax revenue. However, as predicted by the economist, the government will consider meeting half of the revenue shortfall through higher direct tax collection and disinvestment.

Furthermore, meeting the expectations, the budget laid maximum emphasis on the development of the rural and agricultural sector. Several effective measures have been proposed by the government to strengthen and develop the rural as well as the agricultural sector to generate maximum profit.

Union Budget 2018-19 Expectations

Due to several factors such as landmark disruptions and corporate slowdown, FY18 had been a little off-mark. However, given the achievements of the government regarding the fiscal discipline front, the slippage is something that can be easily condoned. Though there were speculations that there can be a fiscal deficit of 10-20 basis points, reiterating the commitments made by the government in the last budget, the government was expected to focus for 3% fiscal deficit target for FY19 in the forthcoming budget.

Apart from fiscal deficit consolidation, there are two other vital aspects that the country was looking forward to in the new budget.

• Consolidation of fiscal deficit

The core agenda of this year’s budget was the containment of the fiscal slippages that the economy is suffering from. According to the budget estimates of FY2018, the current deficit in GDP is 3.2%. The government was expected to facilitate the fiscal consolidation process and review the gross fiscal slippage of FY18 to 3.5% vs.3.2%. In other words, considering the current need of the finance sector in India, in Union Budget FY19, Finance Minister Arun Jaitley was hoped to bring in effective measures to recover the revenue and growth deficiency in the country.

• Bridging the revenue shortfall

According to the revered financial analysts, the budget was supposed to contain effective ways of bridging the revenue shortfall that the economy is subjected to. In this respect, the new budget was likely to have provisions of levying extra income tax surcharge on the high-income segment of the country. The government was also expected to opt for increased divestments of PSUs to resolve the issue.

• Rural and agricultural spending

In the new budget, the government was expected to lay enhanced focus on the agriculture and rural sector of the country to increase the profits. Apart from the agricultural sector, irrigation and rural road development projects are the areas which were expected to receive most of the focus in the forthcoming Union Budget 2018-19. There is also an expectation that the government might increase the MSPs (Minimum support prices) for agricultural crops.

Hence, it can be said that, though the budget has breached its last year’s target, it has come up with other positive initiatives to boost revenue and profit for bridging the revenue shortfalls as expected.