Adverse conditions may cause slippage in fiscal path
21/01/2019
new delhi: The central government’s gross fiscal deficit (GFD) may shoot up to 4% of gross domestic product (GDP) by 2020-21, one percentage point more than the aspired-for limit of 3%, because of higher borrowings, according to an official document on the Centre’s debt management strategy.
The medium-term fiscal policy statement in the 2018 budget projected 7.2% GDP growth in 2018-19, and with higher exports and services growth, India is on its way to achieving sustained growth of 8%, finance minister Arun Jaitley said then.
In case economic growth slips below the projection, GFD is likely to widen as revenue falls short of estimates and the gap will need to be bridged by higher borrowings, the document on debt management said.
“Under this scenario, the GFD GDP ratios for 2018-19, 2019-20 and 2020-21 have been assumed at 3.5 per cent, 3.8 per cent and 4.0 per cent, respectively,” said the document, which the government released on Friday evening.
The medium-term fiscal policy statement said the government would stay on a “fiscal consolidation path” by gradually reducing GFD.
GFD was estimated to decline to 3.3% of GDP in 2018-19, 3.1% in 2019-20 and 3% in 2020-21. The assumption was based on projected nominal GDP growth of 11.6% in 2018-19, 11.8% in 2019-20 and 12.3% in 2020-21 and premised on continuing price stability. Nomithe nal GDP is calculated at current market prices by factoring in inflation. According to the first advance estimate of national income for 2018-19, GDP at current prices is likely to post an annual growth rate of 12.3%.
Economists say that there has been a gradual decline in the GDP rate every quarter and the assumption of 12.3% growth in current fiscal year at current prices appears difficult to achieve, especially because of the upcoming general elections, which may prompt higher spending. PwC India leader Ranen Banerjee said the government is likely to ramp up expenditure in the last two months of the current financial year.
“Fiscal position may not be impacted if schemes are only announced, as actual implementation would take several months. But impact will be felt [in FY19] if the government decides to pass the benefits directly to the bank accounts of the beneficiaries,” he said.
In the forward to the mediumterm debt management strategy document, finance minister Arun Jaitley said the government’s debt portfolio was characterised by a “prudent risk profile” with low rollover risk as the share of short-term debt in total debt is kept within safe limits.
According to a finance ministry statement on December 11, 2018, the government’s total debt was Rs 82.03 lakh crore as of the quarter ended September 2018, up from Rs 79.8 lakh crore in the previous quarter.
“The weighted average maturity of outstanding debt is increasing. India’s debt is also characterised by fixed rate coupon instruments, insulating it from interest rate volatility, wide and diverse domestic investor base and market-aligned rates,” he said.
The low share of external debt, almost entirely from official sources and largely on concessional terms, provides safety from volatility in the international financial markets, Jaitley said.
Share This Story |
|
Comment On This Story |
|
|
|
|