Centre Risks Breaching Fiscal Deficit Target With Rs 80,000 Crore Pre-Poll Gift for Middle Class, Farmers
The government missed its fiscal deficit target of 3.3 percent for the current financial year and instead, has revised its target to 3.4 percent for financial year 2019-2020.
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New Delhi: As 2019 Lok Sabha elections approach, the National Democratic Alliance (NDA) government has rolled out a slew of discounts and schemes, specifically targeting the middle-class section and farmers, a voter-group that is being considered as most crucial for the polls.
The move may be populist in an election year, but also raises questions on prudence.
The Cabinet Committee on Economic Affairs on Tuesday approved the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme with a central aid of Rs 34,422 crore. The scheme aims to harness solar power on agriculturally unproductive or barren land owned by farmers in order to provide financial assistance and help them save water. The government plans to setup solar energy capacities of 25.75 gigawatt (GW) by 2022.
Almost three weeks before this, then finance Minister Piyush Goyal, in the interim budget rolled out the PM-KISAN scheme that would provide Rs 500 a month directly into the bank account of every farmer. The cost to exchequer for the current financial year amounted to Rs 20,000 crore.
Additionally, the interim budget also provided for a complete income tax rebate for those earning up to Rs 5 lakh in a year. The measure will bring an estimated 3 crore taxpayers out of the tax net, costing the exchequer about Rs 18,500 crore in revenue foregone.
The minister also said that the proposal to raise standard deduction from Rs 40,000 to Rs 50,000 and hiking TDS limit on interest income from Rs 10,000 to Rs 40,000 will provide relief to senior citizens.
In another approval by the Cabinet on Tuesday, dearness allowance (DA) was raised by 3 percent to 12 percent. Finance Minister Arun Jaitley, while briefing the media after Tuesday’s Cabinet meeting said the cost to exchequer for hiking DA will be northwards of Rs 9,000 crore.
Therefore, merely through the above four announcements the Centre has already signed up for letting go of Rs 81,922 crore, cumulatively. The figure is close to the divestment target of India, thus implying the magnitude of the corpus.
The government missed its fiscal deficit target of 3.3 percent for the current financial year; instead, it has revised its target to 3.4 percent for financial year 2019-2020. Simply put, fiscal deficit is the difference between the amount of money the government earns and spends in a year.
It is always stated as a percentage of the country’s gross domestic product (GDP). Therefore, when a government misses its fiscal deficit target, it means that it is spending more than it had expected to in the beginning of the year.
Apart from the current roll-outs, the biggest cause of the gap has been the earnings from the goods and service tax (GST). The NDA-led government has quoted the GST as the biggest tax reform movement in the country but it has been unable to get it on smooth track, continually tampering with tax slabs through the year.
According to budget documents, the government revised its expectation for this financial year and expects to mop up Rs 6,43,900 crore as total GST, as compared to its expectation of Rs 7,43,900 crore—a gap of Rs 1 lakh crore.
Fiscal deficit targets not being met have global implications. Investors from across the border keep a close watch on how much a country makes vis-a-vis its expenditure,and a fiscal slippage has traditionally been known to be repulsive.
Immediately after the Budget announcements, Moody’s Investor Service also said that the government will find it difficult to meet the fiscal deficit target of 3.4 per cent in 2019-2020 on account of higher spending and low revenue growth.
Observing that Indian government's debt is "stubbornly high" as a percentage of GDP, Moody's Investors Service Managing Director, Sovereign Risk Group, Gene Fang said it could be brought down only if the Centre sticks to the fiscal consolidation path.
Therefore, with months to go for 2019 elections, the Centre’s efforts to appease the agrarian community and the salaried class will also affect fiscal consolidation. In fact, the government is still expecting a fiscal deficit target of 3 percent for 2020-21, which seems difficult.
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