The Union Budget 2018 presented by Arun Jaitley was in the strict sense of the word a macro budget. It takes a look at the big picture and focuses on the larger aspects like the farm distress, the MSME sector, rural purchasing power, middle class and the senior citizens etc. It may be recollected that the government had already touched 112% of the projected fiscal deficit for the full year 2017-18 by the end of November 2017. Considering that, the spillage in fiscal deficit target was just to the tune of 30 basis points instead of 50 basis points as was originally anticipated. Also the government has managed to project a very conservative fiscal deficit of 3.3% for the fiscal year 2018-19 which again represents a spillage of just 30 basis points over the original FRBM commitments. So for the fiscal year 2017-18 India is looking at a fiscal deficit target of 3.5% instead of the originally planned 3.2%. But is this a cause of worry?
Not exactly a worry, look at the revenues…
Here are some key pointers on the revenue front that underscores that the fiscal deficit spillage of 30 points is more a temporary measure…
Fiscal deficit is driven by productive investments…
That could be the bigger takeaway as far as the fiscal deficit is concerned. A large chunk of the fiscal deficit is going into big ticket investments. Consider some of these data points…
Following a counter cyclical approach to fiscal deficit…
The government is right in that it is adopting a counter cyclical approach to fiscal policy. It is when government intervention is required that it really needs to intervene and let the fiscal deficit expand that little bit. A 30 basis points increase in the fiscal deficit is nothing to really worry about. In fact, if the stock market bounce from lower levels is any indication, it is actually likely to be growth accretive for the Indian economy.
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