Govt swears by fiscal discipline
17 September 2018
The government on Saturday assured that the centre’s fiscal deficit for the current financial year will be within the budget target of 3.3 per cent of GDP, even as it made it clear that there will be no cut in development expenditure.
The assurances come after Prime Minister Narendra Modi reviewed the economic situation with finance minister Arun Jaitley and other senior cabinet ministers.
After an emergency meeting on Friday, the government announced a five-pronged policy to support falling rupee. The meeting, which was extended to Saturday, reviewed revenue and expenditure positions and expressed satisfaction that revenue targets are well within reach and the broad parameters of economy and macroeconomic data are satisfactory.
“The CBDT (Central Board of Direct Taxes) is very clear that this year they will be able to collect in excess of the budgeted target… We are confident that between direct and indirect tax collections, the government will comfortably meet the target if not surpass it,” Jaitley said.
The government had projected in the Budget a direct tax collection of Rs 11.5 lakh crore for the 2018-19 fiscal. “And on the basis of all these analyses, we are optimistic about our growth rate, our tax collection and certainly as far as fiscal deficit is concerned we will strictly meet the 3.3 per cent target,” Jaitley said.
The government’s contention is that with the reduction in black money and a consequent improvement in direct tax collections and increased compliance with GST will help augment revenue collections so as to offset the reliance on borrowings.
As things stand, the fiscal deficit is projected to be higher than the budget target as deficit for the first four months (April-July) of the current fiscal has already exceeded 86.5 per cent of the budgeted amount for the fiscal. However, this is less than the 92.4 per cent of the previous fiscal.
On 31 August, the Controller and Auditor General of India (CAG) said the fiscal deficit for April-July was Rs5,40,00 crore.
According to finance minister Arun Jaitley, black money measures such as demonetisation and GST have had their effect on direct tax collections and collections will be in excess of budget target. There is a phenomenal increase in assessee base as well.
Also, he said, with GST issues being settled, a “pick up in consumption will have impact on GST collections. Govt will meet the target if not surpass it.”
In fact, he said, not only that fiscal deficit will be well within limits, growth will also be much better with no curbs on capital expenditure. "We will have a growth rate higher than what we'd projected earlier this year in the budget," Jaitley said.
India’s current account deficit (CAD) jumped to 2.4 per cent of GDP in the first quarter of 2018-19 from 1.9 per cent in the previous fiscal. A sharp depreciation in the rupee and a spike in the price of crude oil have led to a rise in the CAD, resulting in capital outflows.
Earlier, on Friday, the finance minister outlined a slew of measures aimed at stemming a decline in the rupee, including curbs on non-essential items of imports.
Besides, the government plans to review the removal of the 20 per cent exposure limit of foreign portfolio investors’ (FPI) corporate bond portfolio to a single corporate group and 50 per cent of any issue of corporate bond
There will also be no withholding tax on Masala Bonds issued during current fiscal. The restrictions on Indian Banks, including restrictions on underwriting of Masala Bonds, will also be lifted, he said
To support growth, the government will allow manufacturing firms to avail loans up to $50 million with a maturity of one year.
It also plans to review mandatory hedging condition for infrastructure loans that have already touched 86.5 per cent of the full year's target of Rs6,24,000 crore.
The government hopes that these measures will have impact up to $10 billion and bring some stability in rupee.
The government also expects to exceed the GDP growth target of 7.5 per cent in the current fiscal year, he said.
“The prime minister has expressed satisfaction with regard to the broad parameters in relation to the economy and the macroeconomic data which is emerging so far for this year… The government is confident and will strictly maintain the 3.3 per cent fiscal deficit target for the year,” Jaitley said. He said income-tax collections had been robust with an expanding base, and collections would exceed budgetary targets. Goods and Services Tax (GST) collections were stabilising, he said.