March 8, 2016: Full
marks on adhering to fiscal deficit road map
General Studies: Daily Capsule
Curtain Raiser –News Update (March 8, 2016)
Full marks on adhering to fiscal deficit road map:
|
Fiscal Deficit for 2016-17
|
3.5% of GDP
|
|
Goal of the Government
|
Accelerating growth under
macroeconomic stability
|
|
Questions arise on
|
·
the
credibility of commitment
·
adherence
to fixed road map
|
|
On credibility front
|
·
underestimation
of expenditure*
·
overestimation
of revenue*
|
|
Effects of sustained High
Fiscal Deficit
|
·
rise
in Debt-GDP ratio
·
increase
in interest payments as a proportion of revenues, leaving less for productive
expenditure
|
|
Impact of High Fiscal
Deficit
|
·
Mandated
target of Fiscal Deficit under FRBM Act 2003, is 3% of GDP for the Central
Govt.
·
The
states taken together will also take 3% of GDP
·
Combined
Fiscal Deficit of the Centre and the States will be 6%
·
Both
private business and government invest more than they save
·
They
draw on the surplus of the household sector
·
Household
sector savings in financial assets are also called transferable savings
·
Household
savings in financial assets have come down to almost 7.3% leaving very little
for sectors other than government to draw on the surplus of the household
sector
·
Thus,
there is considerable merit in favour of moving towards the target of 3% of
GDP
|
*Fiscal Deficit: Expenditure and Revenue
|
Total expenditure’s
projected increase
|
10.8%
|
|
Burden of the Seventh Pay
Commission
|
·
Not
clear to what extent has been taken into account
·
It
appears a significant part has been left
|
|
So total expenditure will
rise
|
Resulting into underestimation of the
expenditure
|
|
|
|
|
Gross Tax Revenue Projected
to grow
|
By 11.7%
|
|
Receipts from
Disinvestment estimated for 2016-17
|
Rs. 56,500 crore (actual collection of
Rs. 25,300 crore in 2015-16)
|
|
Projected receipt from
Spectrum auction in 2016-17
|
Rs. 99,000 crore (way above what was obtained
in 2015-16)
|
|
Thus overestimation of
revenues
|
|
Source: Full Marks on fiscal deficit by C. Rangarajan,
March 8, 2016, The Hindu
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