Fiscal deficit target 3.8 per cent

New Delhi: Missing the deficit goal for this financial year, the government on Saturday pushed the fiscal deficit target to 3.8 per cent of the gross domestic product or GDP from 3.3 per cent pegged earlier for 2019-20 due to revenue shortage.

While announcing Budget 2020 in Parliament, Union finance minister Nirmala Sitharaman said, “The government will miss its deficit goals for a third year, pushing the shortfall to 3.8 per cent of GDP from a planned 3.3 per cent in the year ending March. The deficit target for the coming fiscal year starting April 1 was widened to 3.5 per cent.” “We estimate a fiscal deficit of 3.8 per cent in revised estimate (RE) 2019-20 and 3.5 per cent for budget estimate (BE) 2020-21. This estimation is consistent with government’s abiding commitment to macroeconomic stability,” Ms Sitharaman said.

The government has utilised “escape clause” under the Fiscal Respon-sibility and Budget Management (FRBM) Act, which provides it leeway for relaxation of fiscal deficit roadmap during time of stress.

The “escape clause” allows the government to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy, including periods of structural change and those when growth falls sharply. “Accordingly, the return path is being laid before Parliament as a part of Medium Term Fiscal Policy cum Strategy Statement. This fiscal path commits us to the path of fiscal consolidation without compromising the needs of investment out of public funds,” she said.

“Section 4 (2) of the FRBM Act provides for a trigger mechanism for a deviation from the estimated fiscal deficit on account of structural ref-orms in the economy with unanticipated fiscal impl-ications. Therefore, I have taken a deviation of 0.5 per cent, consistent with Section 4(3) of FRBM Act, both for RE 2019-20 and BE 2020-21,” she added.