Govt’s fiscal deficit at 3.5% in FY17; to fall further to 3.2% this fiscal

The government's fiscal deficit stood at 3.5 per cent of the country's gross domestic product (GDP) and is expected to decline further to 3.2 per cent in the current financial year (2017-18), minister of state for finance and corporate affairs Arjun Ram Meghwal informed the Rajya Sabha in a written reply on Wednesday.

The fiscal deficit of the centre as percentage of GDP has declined consistently from 4.5 per cent in 2013-14 to 4.1 per cent, 3.9 per cent and 3.5 per cent respectively in 2014-15, 2015-16 and 2016-17 (provisional actual) and is further budgeted to come down to 3.2 per cent in 2017-18, as per provisional figures released by the finance ministry.

As per the information from the Reserve Bank of India's ''State Finances: A Study of Budgets of 2016-17'', the fiscal deficit of the states as per cent of gross state domestic product (GSDP) was 2.6 per cent in 2014-15, which increased to 2.9 per cent (without the UDAY liabilities) in 2015-16 (revised estimates) and then declined to 2.7 per cent (without the UDAY liabilities) in 2016-17 (revised estimates, based on information from 25 states), he said.

The fiscal deficit-GSDP ratio is budgeted to decline to 2.6 per cent in 2017-18 (based on information from 25 states).

As recommended by the Fourteenth Finance Commission (FFC) for its award period (2015-20),

The union government has approved a fiscal deficit target for states of 3 per cent of respective state's gross state domestic product (GSDP), as approved by the Fourteenth Finance Commission (FFC) for the period 2015-20.

The centre also approved year-to-year flexibility for additional fiscal deficit to states for the period 2016-17 to 2019-20 to a maximum of 0.5 per cent over and above the normal limit of 3 per cent in any given year subject to the states maintaining the debt-GSDP ratio within 25 per cent and interest payments-revenue receipts ratio within 10 per cent in the previous year.

However, the flexibility in availing the additional fiscal deficit will be available to a state only if there is no revenue deficit in the year in which borrowing limits are to be fixed and in the immediate preceding year.

As per the recommendation of the FFC, the union government decided to increase the share of states in the central divisible pool of taxes from 32 per cent to 42 per cent, thereby allowing states greater autonomy in financing and designing schemes as per their needs.

Besides, post-devolution revenue deficit grant has been provided to eleven States where devolution alone could not cover the assessed gap the minister added.