Jaitley’s ‘vetaal’ problem: the fiscal deficit

A confident Arun Jaitley, when presenting the last full Budget of this government, said that things have only improved for the economy since July 2014. But, has the situation improved?

Pointing at the growth levels, Jaitley said as against GDP growth of less than 5 per cent in the last two years of UPA-II regime, India has recorded an average 6.5 per cent growth in the first three years of this government.

Inflation certainly is no longer in the double digit levels as it was during the UPA-II regime. Exports have also looked up since the tepid levels in 2014.

Of course, critics will be quick to point out that Jaitley rode the benefits of softening global crude oil prices trend, not passing the benefits lower prices to the consumers. However, the era of oil derived gains are coming to an end with global crude oil prices ruling firm in recent weeks.

In fact, even the Finance Minister does not want to take a bet on it and said that it is beyond the comfort zone.

The price at which India refiners are buying their crude on January 30 stood at $66.86 a barrel. From the second half of 2014-15 Jaitley had enjoyed the advantage of low oil prices, with average price for the full fiscal 2015-16 hitting $46.14 a barrel and in 2016-17 $47.56 a barrel.

In 2017-18 from April 2017 till January 30 the average was at $ 55.01 a barrel.

The after effects of rising crude oil prices, GST, and demonetisation, coupled with the banking reforms have restrained Jaitley’s spending powers and also made him revise his fiscal deficit target. Financial inclusion got the maximum emphasis in the first two years through the Jan Dhan Yojana, enabling large section of India to get banking accounts.

Between April and December 2017, the Centre’s fiscal deficit exceeded the Budget Estimate by 13.6 per cent to amount to ₹6,20,949 crore.

Data released on Thursday showed that the revenue deficit too had overshot the full year target by 39.5 per cent to ₹4,48,737 crore in the period under review.

“Our government assumed office in May 2014 when the fiscal deficit was running at very high levels. Fiscal deficit for 2013-14 was 4.4 per cent of GDP. The Prime Minister and the government have always attached utmost priority to prudent fiscal management and controlling fiscal deficit… we embarked on the path of consistent fiscal reduction and consolidation in 2014,” Jaitley said in his speech.

“The fiscal deficit was brought down to 4.1 per cent in 2014-15 to 3.9 per cent in 2015-16, and to 3.5 per cent in 2016-17,” he said. But, for 2017-18 the Finance Minister has found himself revising the estimates to 3.5 per cent of GDP from the earlier target of 3.2 per cent. Even for 2018-19 the Jaitley has taken a target of 3.3 per cent lower than earlier target of 3 per cent.

The Finance Minister also acknowledged that in 2017-18, the Centre will be receiving GST revenues only for 11 months, instead of 12 months.

“This will have a fiscal effect. There has also been some shortfall in non-tax revenues on account of certain developments, including deferment of spectrum auction,” he said.

This led to critics to question the timing of demonetisation and GST roll out. Some also felt that with delay in implementation of some of the key reforms, the Finance Minister has lost the opportunity of turning soft oil prices to his advantage.

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