Budget 2019-20: On Fiscal Deficit Target

By Moderator July 6, 2019 12:43

The government is estimating a fiscal deficit of 3.3% of GDP in the financial year 2019-20, lower than the 3.4% estimated earlier in the interim Budget presented in February.

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  • The main reason for this is an increase on the revenue side, while expenditure is being controlled
    • Numbers showed that the government’s revenue receipts during April-May 2019-20 were 7.3 percent of Budget estimates. It was at similar levels during the year-ago period too.
    • Capital expenditure, however, was only 14.2 percent of budget estimates compared to 21.3 percent in the comparable period a year ago.
    • The government relies on greater non-tax revenue through stake sale in public sector enterprises may shore up government finances.
      • The government has raised its divestment target to ₹1.05 trillion from ₹90,000 crore estimated earlier.
    • Increase in income tax surcharge on those earning ₹2-5 crore by 3%, and 7% on those earning above ₹5 crore will also garner additional revenue for the government.
    • Higher customs duties on petroleum products and gold will also lead to higher revenue collection. Customs duty on gold has been increased to 12.5% from 10%.
  • Rating agencies and tax analysts say there is a risk of missing the 3.3% target if tax revenue falls short of the target.
    • Fiscal deficit touched 52 percent of the budget estimate for the full year in the first two months of 2019-20. According to data from the Controller General of Accounts, the gap between expenditure and revenue in absolute terms was Rs 3,66,157 crore.

Fiscal deficit

  • Definition: The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
    • The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts. The net fiscal deficit is the gross fiscal deficit less net lending of the Central government.
    • Generally, fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings, and other development.
    • A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.

Also read: Economic Survey 2018-2019 Analysis

Union Budget 2019-20 – Full Explanation


By Moderator July 6, 2019 12:43