Finance Minister Arun Jaitley said on Saturday that the government will meet its fiscal deficit target of 3 per cent of gross product for the year, without cutting capital expenditure. This statement of intent aimed at markets and investors, is being considered bold by policy watchers and analysts, especially given the various challenges on revenue and spending front.
After Prime Minister Narendra Modi chaired a review of the 2018-19, Union Budget and the work done by various departments of the finance ministry this year, Jaitley said that the Centre will end the year without any capex cut and will collect direct taxes in excess of budgeted targets. Jaitley did not make the same claim for goods and services tax (GST), though government officials say that any shortfall in GST will be made up by other sources of revenue. The finance minister also said that the disinvestment target for Rs 800 billion for the year will possibly be exceeded.
After the April-July fiscal deficit data was released on August 31, several analysts hinted that the government may need to go for cuts in capital expenditure to meet the fiscal deficit target. That assessment has now been put on hold after Jaitley’s latest statement, with economists saying that a clearer picture of the Centre’s fiscal health will emerge around December.
However, there are certain pressures that experts point to (see box).
“With crude threatening to break $80 a barrel, the pressure on the external sector looks more palpable. In this context, the government’s decision to not go for excise duty cuts will cheer the markets. We believe that GST collections will pick up pace in the second half of the year. However, the Centre needs to keep a close eye on disinvestment receipts and non-tax revenue,” said Soumya Kanti Ghosh, chief economist, State Bank of India
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