Fiscal deficit target to be maintained: EAC

“I am sure the government will do its best to maintain the 3.2 per cent fiscal deficit target,” he said on the sidelines of the Finance and Economics Conference, organised by the International Management Institute here. The Centre’s decision to “raise additional market borrowings of Rs 50,000 crore only in fiscal 2017-18 through dated government securities” raised concerns that it may miss the fiscal deficit target. 

Finance Minister Arun Jaitley, in his last budget speech, pegged the fiscal deficit for 2017-18 at 3.2 per cent of the GDP, saying the Centre would remain committed to achieving three per cent in the following year. 

Jaitley had also said that the government had taken note of the fiscal deficit roadmap of three per cent recommended by the FRBM (Fiscal Responsibility Budget Management) Review Committee for the next three years.

Responding to a query on the government’s focus for the upcoming union budget for 2018-19, Roy said the government should focus on prudent fiscal policy, so as to deliver inclusive economic growth. However, Roy, who is also Director of the National Institute of Public Finance and Policy, hailed the West Bengal government for increasing the state’s own tax collections, controlling expenditure and bringing efficiency in expenditure.

Rising commodity prices, especially that of crude oil that has hit a three-year peak last week, will double current account deficit (CAD) to $39 billion or 1.5 per cent of GDP this fiscal year, warns a report. 

In September, domestic rating agency Icra had pegged CAD which is the difference between inflows and outflows of foreign exchange based on sale of merchandise, services and remittances, to print at 1.3 per cent of GDP. 

The widening merchandise trade deficit will lead to a deterioration in CAD to $ 12-15 billion or 2-2.3 per cent of GDP in the December quarter, it said. However, seasonal factors will help CAD shrink sharply to under $ 5 billion for the March quarter, it said, adding settling the year at 1.5 per cent of GDP at USD 39 billion. 

So far, this fiscal, the country has recorded a CAD of 2.4 per cent in the first quarter and 1.2 per cent in Q2. 

“Based on the anticipated widening of the merchandise trade deficit, we expect the current account gap to record a sizeable deterioration to $12-15 billion in Q3 or 2-2.3 per cent of GDP,” its principal economist Aditi Nayar said. The CAD, one of the most critical factors that dictates macro stability, had come at $ 7 billion in the September quarter and $ 8 billion in the December period last year. 

She said shrinkage in the March quarter will happen despite unfavourable base effect of exports growth, and expectations of import commodity prices such as crude oil, coal, steel and non-ferrous metals, to remain elevated.