Budget 2016: Fiscal Deficit — Range, instead of number

Finance Minister Arun Jaitley announces setting up of a committee to review the FRBM Act

Written by Sunny Verma | New Delhi | Updated: March 1, 2016 5:24 am
budget, budget 2016, union budget, fiscal, fiscal deficit, union budget 2016, budget today, budget this year, 2016 budget, india news The Budget decided to do away with the classification of Plan and non-Plan expenditure from fiscal 2017-18 onwards, synchronising it with the last year of the 12th Five Year Plan (Express Photo by Neeraj Priyadarshi)

While sticking to the fiscal deficit reduction roadmap for the next financial year, Finance Minister Arun Jaitley announced setting up of a committee to review the Fiscal Responsibility and Budget Management (FRBM) Act. The committee would examine whether the government can have a fiscal deficit range as the target, instead of the current practice of the fixed numbers as targets.

“While remaining committed to fiscal prudence and consolidation, a time has come to review the working of the FRBM Act, especially in the context of the uncertainty and volatility which have become the new norms of global economy,” Jaitley said. The committee will study a suggestion that fiscal expansion or contraction should be aligned with credit contraction or expansion in the economy.

For the year 2015-16, the government would meet the fiscal deficit target of 3.9 per cent of gross domestic product, and reduce it further to 3.5 per cent in the next year. “I have weighed the policy options and decided that prudence lies in adhering to the fiscal targets,” Jaitley said.

Despite maintaining the fiscal consolidation roadmap, the government has stepped up expenditure for the next year, especially for the infrastructure and rural sectors. To stimulate the economy in the backdrop of global slowdown, the Budget proposes a 15.3 per cent higher expenditure at Rs 19.78 lakh crore in 2016-17, comprising Rs 5.50 lakh crore under Plan and Rs 14.28 lakh crore under non-Plan.

Watch video: The Big Picture Of Arun Jaitley’s Budget 2016

On interest payments alone, the government will spend Rs 4,92,670 crore in 2016-17, as against Rs 4,42,620 crore in the current financial year. The Central government’s total tax revenue is projected to grow at 11.24 per cent to Rs 10.54 lakh crore in 2016-17 from Rs 9.47 lakh crore in 2015-16 revised estimates. New tax proposals in the Budget would result in net tax gain of Rs 19,610 crore in 2016-17.

fiscal graphThe Budget provides an outlay of Rs 1,62,759 crore for defence in 2016-17, up by 13 per cent from Rs 1,43,236 crore in 2015-16 revised estimates. Capital expenditure on defence has been put at Rs 86,340 crore against Rs 81,400 crore. Subsidies will be marginally lower at Rs 2,50,433 crore as opposed to Rs 2,57,801 crore in the revised estimates. It is not clear in the Budget how much resources have been earmarked for meeting liabilities on account of the 7th Pay Commission’s recommendations and One Rank One Pension scheme. Jaitley on Monday said the government will prioritise its expenditure to meet these two liabilities. The government had earlier estimated that about Rs 1.10 lakh crore would needed for meeting these liabilities.

The Budget also decided to do away with the classification of Plan and non-Plan expenditure from fiscal 2017-18 onwards, synchronising it with the last year of the 12th Five Year Plan. The government intends to replace this revenue and capital classification of expenditure, which is expected to capture the spending pattern more appropriately.

Finance Secretary Ratan Watal said on Monday the Center has discussed this impending change with the state finance secretaries, and expects state governments to adopt to the new method of expenditure classification as well.

In the Budget, Jaitley focused on plans for agriculture and farmers welfare by providing Rs 35,984 crore on this alone, while Rs 87,765 crore has been allocated for the rural sector. As much as Rs 2.87 lakh crore will be given as grants in aid to panchayats and municipalities while allocation for social sector including education and healthcare has been pegged at Rs 1.51 lakh crore.

A total outlay of Rs 2.21 lakh crore has been made for infrastructure, of which Rs 97,000 crore will be in the road sector including on rural roads.

Kotak Mahindra Bank’s president of consumer banking Shanti Ekambaram said the budget reflected the tight balance between maintaining fiscal prudence while allocating resources to agriculture, rural development, healthcare and infrastructure sectors.

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