People exersise outside the North Block of the Central Secretariat building which houses the Ministry of Finance and Ministry of Home Affairs (Prashanth Vishwanathan/Bloomberg)

Budget 2019: Fiscal Deficit For FY20 Pegged At 3.4%

The central government fiscal deficit for 2018-19 settled at 3.4 percent of the GDP, Finance Minister Piyush Goyal announced at the start of his budget speech on Friday. This is marginally higher than the target of 3.3 percent. For FY20, the government has said that the fiscal deficit will remain unchanged at 3.4 percent of GDP.

This is the second year in a row that the government has missed its fiscal deficit target.

Rating agencies and economists had cautioned the government against allowing a fiscal slippage for a second consecutive year.

Calling the interim budget a test of the government’s commitment to fiscal consolidation, Fitch Ratings on Monday said that populist spending would add to fiscal pressures. “Higher pre-election spending could risk a second consecutive year of fiscal slippage relative to the government's targets and would further delay plans to reduce the high general government fiscal deficit and debt burden,” Fitch had said.

Moody’s Investors Service, too, had said that recent measures aimed at small businesses and any new farm support schemes could hurt the fiscal consolidation process.

Pressure on government finances has built up over the last two years following the implementation of the Goods and Services Tax. Revenue collections from indirect taxes have remained below projects while spending commitments have only increased.

To be sure, over the tenure of this government, the fiscal deficit has been brought down from 4.4 percent of the GDP in FY15 to 3.4 percent of the GDP in FY19. However, the medium-term objective of a fiscal deficit of 3 percent of GDP has been deferred to 2020-21.