Slippage possible in fiscal deficit target: CEA Krishnamurthy Subramanian

“A slippage in fiscal deficit target is possible this year,” said Krishnamurthy Subramanian, Chief Economic Advisor. In July last year, Finance Minister Nirmala Sitharaman had set a target of limiting the fiscal deficit to Rs 7.04 lakh crore or 3.3% of the GDP in FY 2019-20.

New Delhi: Economic Survey 2019-20: In a candid confession about the weak position of the Union government’s finances, Chief Economic Advisor Krishnamurthy Subramanian on Friday admitted that there could be slippage in meeting the fiscal deficit target in this fiscal.

In July last year, Finance Minister Nirmala Sitharaman had set a target of limiting the fiscal deficit to Rs 7.04 lakh crore or 3.3% of the GDP in FY 2019-20. However, a slowing economy and the stimulus measures announced in September-October last year have severely impacted the government’s revenue collections.

“A slippage in fiscal deficit target is possible this year,” said Krishnamurthy Subramanian, Chief Economic Advisor.

It is a rare candid admission by a senior government official just before the presentation of Union Budget on Saturday. Usually, senior government officials refrain from commenting on the issues related to the Union budget before it is presented in the Parliament.

However, it is not surprising as economists and experts have already expressed their concerns that finance minister Nirmala Sitharaman may not be able to stick to the fiscal deficit target that she set in her maiden budget.

In three years, fiscal deficit, which reflects the Union government’s total borrowing requirement in a year, has seen steady rise. It has gone up from Rs 5.91 lakh crore in 2017-18, which was 3.5% of the GDP that year to Rs 6.34 lakh crore in 2018-19, which was 3.4% of the GDP.

However, after winning the second term in May 2019, Prime Minister Narendra Modi’s government decided to follow the path of fiscal consolidation and decided to bring it down to just 3.3% of the GDP or Rs 7.04 lakh crore.

However, due to a steep fall in the economic growth rate, not only the government’s revenue projections went haywire but it was forced to forego more revenue as part of stimulus measures announced to shore up the economy.

In September 2019, Nirmala Sitharaman announced a major cut in corporate tax rate that brought down effective tax rate for Indian companies from 31-32% to little over 25%. The government said that it will entail a revenue loss of Rs 1.45 lakh crore.

(Article by Senior Journalist Krishnanand Tripathi)