Economy

Govt contains fiscal deficit at 4% of GDP; beats its own target

Our Bureau New Delhi | Updated on January 23, 2018 Published on May 17, 2015

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The Government has managed to restrict the fiscal deficit to 4 per cent during 2014-15, which is even below the revised estimate announced in the budget. Fiscal deficit is difference between the income and expenditure of the Government.

“The fiscal deficit at the end of 2014-15, stands at Rs. 5,01,880 crore which is 98 per cent of the projected figure in RE (Revised Estimate) 2014-15. Fiscal deficit as a percentage of GDP is 4 per cent as against the RE of 4.1 per cent (4.4 per cent for the previous year i.e. 2013-14). The Union Government is firmly committed to path of fiscal consolidation and this is a step forward,” a Finance Ministry statement issued here on Sunday said.

Fiscal deficit number shows the fiscal health of the Government. Most of the international rating agencies closely watch this number. Anticipating better number, global rating agency, Moody’s changed its rating outlook for India to ‘positive’ from stable, with possibility of rating upgrade in the next 12-18 months. However, another rating agency Fitch kept the rating outlook at ‘stable.’ Both the agencies kept the sovereign rating unchanged. While Moody’s affirmed ‘Baa3’, Fitch maintained ‘BBB-’. Both these ratings are similar and indicates last investment grade. Foreign investors usually base their decisions on sovereign rating. It also helps the companies in raising money abroad.

Fiscal deficit number also affect liquidity in the system as higher the deficit, higher will be borrowing. Consequently, there will be less liquidity available for the private sector and hence this will push the interest rate up. Easing fiscal constraint was also one of the reason for lowering the benchmark interest rate, repo rate (the rate at which RBI lends to the banks) by 50 basis points in two phases fist in January and then in March.

Revenue Deficit

The Finance Ministry also announced that revenue deficit also came down to 2.8 per cent as against the revised estimate of 2.9 per cent. This deficit refers to mismatch in the projected earning ad expenditure. Since the Government managed to collect more taxes than it was expecting, it impacted positively not just the revenue but also fiscal deficit too.

Income

Tax authorities managed to collect over Rs 12.45 lakh crore during the 2014-15, which is 9 per cent more than 2013-14. This collection is 9.8 per cent of GDP. Although, the Government was expecting major shortfall in tax collection due to slower manufacturing growth and export too, but the Finance Ministry claimed that better tax administration helped in achieving indirect tax more than the revenue estimate. Non debt capital receipts also helped the Government to improve its kitty. Such earnings which also comprise of disinvestment stands at Rs.43,439 crore with an increase of 4 per cent.

Expenditure

On the expenditure front, actual number is also below the RE. In terms of plan expenditure, the RE was Rs 4.68 lakh crore, but actual was Rs 4.36 lakh crore. Similarly, non plan expenditure came down to Rs 11.91 lakh crore from the RE of of Rs 12.13 lakh crore

Published on May 17, 2015
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