Easing deficit targets |
The Finance Ministry is likely to announce a medium-term “fiscalglide” path in the 2015-16 budget by easing the fiscal laws.Apparently, the new government prepares the ground for massive publicinvestment to boost growth in the backdrop of a prolonged slowdown andreluctance of the corporate sector to start spending. This means thatdeficit targets starting next fiscal may be eased for a limited perioduntil there is a rebound in growth with a commitment to getting backon track over the medium term. For 2014-15, Finance Minister ArunJaitley will stick to the fiscal deficit target of 4.1 per cent of theGDP. But in the next year or two, the target of lowering the fiscaldeficit by 0.3 per cent of GDP may not be specified. The FiscalResponsibility and Budget Management Act or the FRBM mandates that thegovernment lower its fiscal deficit by 0.3 per cent and revenuedeficit by 0.5 per cent of GDP every year. The finance ministry hasnow come around to the view that given the slowdown over the lastcouple of years, the government wants to ease deficit targets to kickstart investment due to their debt-laden balance sheets, themuch-needed thrust can come only from the government investing inpublic projects. So, the government will have to create extra fiscalspace which can be achieved only through easing rules as it strugglesto raise revenues.
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