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Government cites unfulfilled GST potential, farm crisis as reasons for revised fiscal deficit target

Government cites unfulfilled GST potential, farm crisis as reasons for revised fiscal deficit target

Government cites unfulfilled GST potential, farm crisis as reasons for revised fiscal deficit target
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By CNBC-TV18 Feb 2, 2019 11:27:02 AM IST (Updated)

Acting finance minister Piyush Goyal's interim Budget speech included a number of key announcements, one of which was revising the fiscal deficit target to 3.4 percent from the previous 3.3 percent.

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Fiscal deficit is the difference between the total revenue and expenditure by the government.
With this being the last Budget of the Modi government ahead of the Lok Sabha elections, increase in spending was expected, especially allocation of funds for farmers as they go through crisis. On the other hand, the government has seen a combination of revenue shortfall, with GST still being in the transition period.
And these two are indeed the reasons behind the government revising the fiscal deficit target, according to the official government document.
As per the government, the full potential of GST is yet to be realised as it is still in its transition period.  "...rate changes have reduced the tax burden on consumers and in the long run will lead to improvement in compliance, reduce classification disputes and make GST more equitous," the government stated in its official document.
The government added that it needed to play a critical and an effectively large role to contribute in supporting the farmers while they face the "changes in the agricultural economy that are underway".
Hence, the government explained, there will be a deviation from the fiscal path.  "It is anticipated that there shall be a deviation from the fiscal path by 0.1 pp in RE 2018-19 and the fiscal deficit (FD) will be at a level of 3.4% of GDP. For a similar reason, the FD is anticipated to remain at 3.4% of GDP in
BE 2019-20," it stated.
The latest  finance ministry data shows that the GST collection has constantly missed the target and in fact has fallen significantly. In December, the collections were at Rs 94,726 crore against the Rs 97,637 crore in November, down around 3 percent while the November collections too had dropped 3 percent from the October GST collections of Rs 1 lakh crore. And the collection has so far crossed the Rs 1 lakh crore mark only thrice.
Sanjeev Sanyal, Principal Economic Advisor, finance ministry, sharing his views on the government's decision to revise the fiscal target said that it wasn't a matter of concern as not very long ago, "we used to debate between 4.50 or 5.50 percent (fiscal deficit) of gross domestic product (GDP)". "If you look at the primary deficit - in fact it has done better than what had been budgeted," said Sanyal.
On the other hand, some economists believe that fiscal deficit is a big worry as the decisions like tax rebate and basic income for farmers are taken at the cost of fiscal math.
Gene Fang, associate managing director, sovereign risk group, Moody's Investors Service, believes that it would be more challenging to meet fiscal deficit in the medium-term. "The chances are that these measures are going to have some fiscal cost."
"The continuous deviation from the FY19 fiscal deficit target and the 'pause' on FY20 fiscal consolidation is a negative surprise and the credibility of the target to get fiscal deficit down to 3 percent by FY21 is "now in question", Japanese brokerage Nomura said in a note, as quoted by PTI
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