India’s fiscal deficit is expected to come in at 3.5 percent of GDP in financial year 2018-2019, as policymakers seek to promote economic growth by reducing the pace of fiscal consolidation, says a report.
According to the report by BMI Research, a unit of Fitch Group, there is room for fiscal slippage as the government seeks to achieve its 7.5 percent growth target.
“We are therefore revising our forecast for the financial year 2018-2019 fiscal deficit to come in at 3.5 percent of GDP, from 3.3 percent previously,” BMI Research said in a note.
“The Indian government released its Union Budget for FY2018/19 (April-March) on February 1, which we believe seeks to support growth and job creation at the expense of a slower pace of fiscal consolidation as policymakers aim to achieve a USD 5 trillion economy by 2025,” the report added.
The government outlined a fiscal deficit target of 3.3 percent of GDP in 2018-19 as against a revised estimate of 3.5 percent in 2017-18, indicating some fiscal consolidation, albeit at a slower pace than that recommended under the Fiscal Responsibility and Budget Management (FRBM) framework.
“While the Indian government loosened its central fiscal deficit target for FY2018/2019, it did not abandon its fiscal consolidation plans completely, but instead pushed its 3 percent fiscal deficit target back by a year to FY2019/20,” the report said.
The fiscal 2018-2019 budget saw a further increase in overall expenditure, with the biggest allocation going to transport, rural development, agriculture, education, and healthcare, as the key focus is supporting long term growth.