Union Finance Minister Nirmala Sitharaman on Sunday said the government did not plan to revise the fiscal deficit target yet for the ongoing financial year, PTI reported. In her Budget speech in July, she had said the government would aim to contain fiscal deficit within 3.3% of the Gross Domestic Product in 2019-’20.
Fiscal deficit is the difference between a government’s borrowings and revenue. Recent government spending on measures to boost the slowing economy has raised fears that the Centre may miss the target. The most recent announcement – reduction in corporate tax rates to boost investments and growth – will cost the government an estimated Rs 1.45 lakh crore per year.
Global rating agency Moody’s has said that the reduction in corporate tax, which Sitharaman announced on Friday, would further narrow the room for containing fiscal deficit even when the transfer of the Reserve Bank of India’s surplus is taken into account. Another ratings firm, S&P Global, said the move was a “credit negative development” as it will widen India’s fiscal deficit, Reuters reported.
Analysts have said the reduction of corporate tax rates could widen the fiscal deficit by as much as 70 basis points. A basis point is one-hundredth of a percentage point.
A decision on whether the fiscal deficit target needs to be revised will be taken later, as these are “decisions taken near the Budget”, Sitharaman told reporters. The minister said that a decision on revising the borrowing target for the second half of 2019-’20 would be taken in the next few days. The decision to reduce corporate taxes had raised fears in the market that the government would need to borrow more.
“Not touching any of the given targets now,” Sitharaman said. “When the meeting for revised estimates takes place, we will look at it.”
Sitharaman will present the Union Budget for 2020-’21 in February. Unidentified government officials told Reuters earlier this month that India was likely to miss its fiscal deficit target and be forced to raise it to 3.5% of the GDP towards the end of this year.
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