In the Union budget, Finance Minister Nirmala Sitharaman had ambitiously kept a fiscal deficit target of 3.3 per cent for the current fiscal year, compared with a target of 3.4 per cent set in the interim budget. As the number raised questions and doubts among rating agencies and the business community, the finance ministry on Friday clarified that the real fiscal deficit could actually be higher at 3.5 per cent.
At a post-budget meet of CII in Delhi, Subhash Chandra Garg, finance secretary and economic affairs secretary, said the industry was needlessly worried about why the government had set a lower fiscal deficit target for the year, even though the business community had factored in 3.5 per cent fiscal deficit for the government this year.
Garg sought to assuage fears that the lower fiscal deficit number would translate to lesser spending by the government this year. “The fully serviced bonds and off-budget liabilities from the past are about Rs 4 lakh crore. This year, we have decided to have off-budget borrowing of Rs 54,000 crore only,” Garg told the gathering of industrialists and investors at the CII meet.
Earlier in January this year, the CAG had issued strong warnings to the Narendra Modi government for indulging in off-budget expenditures through these borrowings. The CAG had advised the government that off-budget capital raising should be limited by the government. It advised that the government should declare its off-budget spends in the budget document itself and take consent of MPs in Parliament for off-budget fundraising.
“Many people had said that the budget has to be more transparent, which is why, this time, we have also included off-budget borrowing figures,” Garg said. In budget 2019-20, the government fixed off-budget borrowings or extra-budgetary resources (EBRs) at Rs 4.4 lakh crore. This is lower than last year’s figure of Rs 5.27 lakh crore.
“People often ask me what is the real fiscal deficit. If you consider this off-budget borrowing, then the real fiscal deficit would be about 3.5 per cent of the GDP,” Garg added. The Centre has committed to reducing the fiscal deficit—the gap between its total expenditure and revenue—to 3 per cent of the gross domestic product (GDP) by 2020-21, as per the Fiscal Responsibility and Budget Management (FRBM) Act.
The finance secretary had earlier said that the government will stick to the fiscal roadmap announced in the budget. “Fiscal discipline is an article of faith. And we will stay the course,” Garg said when doubts were raised by corporates about the government raising the fiscal deficit target later on in the year.
India Inc., however, felt that the grand announcements in the budget may not have the full backing of government intent. “One of the major pain point across all industries is this demand compression that we are witnessing for the last one year. Second is the pain due to lack of liquidity in the market,” said Vinayak Chatterjee, founder of Gurgaon-based Feedback Infra Ltd and a special adviser on infrastructure to the finance minister.
“A combination of these two and delayed payments from the government are creating stress for the business community,” Chatterjee added.
Garg, however, denied charges that there is a lack of liquidity in the system. "At the aggregate level, liquidity is surplus over the last four weeks,” he said. Garg indicated that a government payment portal would also be in the works soon, as declared in the budget by Finance Minister Nirmala Sitharaman.
