Home >Politics >Policy >Union Budget 2016-17: Arun Jaitley sticks to fiscal deficit target of 3.5%
A file photo of finance minister Arun Jaitley. Photo: Hindustan Times
A file photo of finance minister Arun Jaitley. Photo: Hindustan Times

Union Budget 2016-17: Arun Jaitley sticks to fiscal deficit target of 3.5%

Arun Jaitley said in his budget speech that a committee will review FRBM Act and determine whether there should be a range for fiscal deficit targets

New Delhi: Shrugging aside demands for digressing from his fiscal consolidation road map, finance minister Arun Jaitley stuck to the fiscal deficit target of 3.5% of gross domestic product (GDP) for 2016-17, after achieving the 3.9% of GDP target in 2015-16.

Presenting his third budget, Jaitley, however, said he will set up a committee to review the Fiscal Responsibility and Budget Management (FRBM) Act and determine whether there should be a range for fiscal deficit targets, rather than set numbers, to provide the necessary policy space to governments.

The Economic Survey on Friday advocated a review of the medium-term fiscal consolidation framework and recommended that the government “purchase insurance" against downside risks to the economy by increasing public investment rather than reducing the fiscal deficit significantly.

The survey said it may be hard to endlessly expect significantly higher growth impetus from consumption and that the government’s focus on fiscal consolidation limits the option of raising general government consumption expenditure.

Arvind Subramanian, chief economic adviser in the finance ministry, in his mid-year economic review also advocated digressing from the fiscal consolidation road map to boost public investment.

Reserve Bank of India governor Raghuram Rajan has gone public with his view that higher government spending at this time will not create any additional growth momentum and may limit the central bank’s ability to cut policy rates further.

Jaitley also announced that from fiscal year 2017-18, the distinction between Plan and non-Plan expenditure will be done away with, once the 12th Five-year Plan ends in 2016-17.

Even while sticking to the fiscal deficit target of 3.5% of GDP for 2016-17, Jaitley announced a massive push for the infrastructure and agriculture sectors, announcing a 15.3% rise in plan expenditure in 2016-17 over the previous year.

For the roads sector, including rural roads and highways, a total budget of 97,000 crore has been allocated, including 15,000 crore through National Highways Authority of India bonds.

The capex outlay for roads and railways together stands at 2.18 trillion.

On the revenue side, Jaitley said indirect tax measures will lead to 21,670 crore in additional revenue while his direct tax measures will result in a loss of 1,060 crore, leading to a net revenue gain of 19,610 crore.

One has to look at the budget fine print to see whether the finance minister’s fiscal math adds up.

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