With tax revenue slowing in a sputtering economy, some states have suggested Union Finance Minister Nirmala Sitharaman to go for fiscal expansion and relax the deficit target to 4 percent of the gross domestic product.
The finance minister had in her maiden budget in July reduced fiscal deficit target for 2019-20 to 3.3 percent from 3.4 percent earlier. Keeping that in mind, the government stuck with the borrowing plan announced in the budget, despite corporate tax cuts costing the exchequer Rs 1.45 lakh crore.
During the pre-budget consultation with Sitharaman, some states made a case for fiscal expansion by boosting consumption to tide over sluggishness in the economy.
The biggest take home from Pre- Budget discussion of FMs is suggestion by Bihar and Kerala to raise the fiscal deficit limit to 4 %. It was agreed to large number of states. In current year real expenditure of states will decline- a crazy macro outcome in time of recession.
December 18, 2019Some experts have already predicted that the fiscal deficit is expected to rise to 3.6-3.8 percent of the GDP in 2019-20 due to weak revenue collection resulting from sluggish economic growth and the government's corporate tax cut.
India's fiscal deficit at the end of October stood at Rs 7.2 lakh crore, or 102.4 percent of 2019-20 Budget Estimate.
Many economists, including former Reserve Bank of India Governor Raghuram Rajan, have expressed concerns that India may be entering a phase of slow growth and high inflation—or stagflation.
Rising food prices, particularly those of onion, pushed retail inflation in November to an over three-year high of 5.54 percent, while industrial production shrank by 3.8 percent in October. India's GDP growth slowed to a more than six-year-low of 4.5 percent in July-September this year.
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