The Economic Survey 2019-20 warns against a widening fiscal deficit, stating that the government may need to relax its target for the current financial year to revive growth. The Economic Survey, tabled in parliament a day before the Budget, however pegs economic growth at 5 per cent in the current financial year – lower than its estimate of 7 per cent last year – and then projects it to pick up to 6-6.5 per cent in the next financial year. In 2019, the government targeted to contain the fiscal deficit at Rs. 7.04 lakh crore – or 3.3 per cent of GDP – in the financial year ending March 2020, from Rs 6.49 lakh crore (3.4 per cent of GDP) in the previous year, amid soaring expenditure on account of big ticket announcements and shrinking revenue thanks to insufficient asset sales.The move to revise the fiscal gap goal to a stricter 3.3 per cent from 3.4 per cent in 2019 came as a surprise to many economists, who had expected the government to act in the other direction.Finance Minister Nirmala Sitharaman is set to outline fiscal steps that may include higher spending in rural areas and possible tax cuts when she delivers her budget speech at 11 am on Friday.The government is expected to widen its fiscal deficit target for the coming financial year. If that happens, it will be the third year in a row in which the government deviates from its fiscal consolidation path.Most economists and market participants however see the current year’s fiscal deficit touching 3.7-3.8 per cent of the GDP as growth has slowed drastically with the economy expanding just 4.5 per cent in the July-September quarter, its weakest pace since 2013.Fiscal deficit occurs when a government collects lesser money than it spends. It precisely indicates how much a government needs to borrow from the markets to meet its expenses. But any increase in expenditure at a time of shrinking revenues will put additional pressure on the fiscal deficit.The top economic adviser to the government favors relaxing the budget deficit target to boost economic growth from an 11-year low.The government needs to spend in order to boost the economy as monetary policy actions alone have done little to revive credit demand and restart the growth engines.The central bank has cut interest rates by 135 basis points since last February, but that has had little impact on growth.The economy needs to grow at about 8 per cent a year to create enough jobs for the millions of youth joining the labour force each year; yet many economists see the current slowdown continuing for another year or two, underlining the case for urgent reforms.
