Can India meet 6.8 per cent fiscal deficit target next year? Experts express doubts
While experts have welcomed the bold fiscal stance, they have raised concerns over achieving the goal next year and cautioned that fiscal firepower is limited due to a high debt ratio
NEW DELHI: After posting a fiscal deficit of 9.5 per cent, the Centre has set a target of bringing it down to 6.8 per cent in the next financial year. However, going by the fine print, subdued tax collection and high borrowing, experts feel that the target is difficult to achieve.
While the tax target is lower than the previous year's target, the revenue receipts are projected to rise by 15 per cent in FY22. For non-tax revenue, the government is heavily relying on divestment proceeds of Rs 1.75 lakh crore and dividend transfer of Rs 1,03,500 crore.
While experts have welcomed the bold fiscal stance, they have raised concerns over achieving the goal next year and cautioned that fiscal firepower is limited due to a high debt ratio, which can have an impact on India's sovereign rating.
"Deficit targets presented in India's central government budget on February 1 are higher, and medium-term consolidation more gradual, than we expected," Jeremy Zook, director Fitch Ratings' Asia-Pacific Sovereigns team said in a note on Tuesday.
The public debt to GDP ratio stands at around 90% for India compared to a 53% median for "BBB" rated economies.
The rating agency said though revenue and economic assumptions made in the budget are "largely credible", the disinvestment target at over three times of what was achieved in 2020/21 appears optimistic.
The government had been able to garner only 0.19 lakh crore from divestment proceeds so far in this fiscal year against the budget target of Rs 2.10 lakh crore.
Fitch added that this can have an impact on India's rating.
"Signs of a weaker-than-anticipated economic recovery or a reassessment of medium-term growth potential would make it more challenging to achieve a downward trend in the debt ratio under our forecasts and add to pressure on the rating," it added.
Meanwhile, the government is confident of sticking to its fiscal glide path.
"Our revenue figures for this time are understated and overstated. So we have taken our nominal GDP at 14.4 percent and the revenues at 16.7. The buoyancy is only 1.16. We are hopeful that we will be able to get more than this and also achieve more in the other areas of non-tax revenue and disinvestment. We will definitely be within 6.8 percent and could be lower," Tarun Bajaj, secretary, Department of Economic Affairs said at a post-Budget press conference.
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