Elusive 3% Fiscal Deficit Target

In a pre-Budget meeting with Finance Minister Arun Jaitley, a section of economists had advocated deferring the Centre's fiscal consolidation road map again to give a boost to sagging economic growth.

In fact, the road map was first breached way back in 2008-09, due to the global financial crisis and the consequent need to cut tax rates and raise public spending. The target of cutting the Centre's fiscal deficit to 3 per cent of GDP by that year as mandated in the Fiscal Responsibility and Budget Management (FRBM) Act was surpassed by 100 per cent.

The deficit touched 6 per cent by then. This was in sharp contrast to 2007-08 when the deficit was cut to just 2.7 per cent. It never reached 3 per cent of GDP since 2008-09 following deferments. After a wide slippage in the fiscal deficit target in 2008-09, the 13th Finance Commission recommended new path to have 3 per cent fiscal deficit by 2013-14 which was to be kept at the same level in the following year.

However, then finance minister Pranab Mukherjee in a medium-term fiscal policy statement, given in February 2011, proposed the deficit at 3.5 per cent by 2013-14. After the fiscal deficit touched almost six per cent of GDP in 2011-12, Mukherjee in 2012 again diluted the road map proposing a deficit of 4.5 per cent in 2013-14 and 3.9 per cent in 2014-15. After coming back to the Finance Ministry following the election of Mukherjee as the President, P Chidambaram revised the road map on the basis of recommendations given by the Vijay Kelkar Committee.

The road map talked of reining in the deficit at 3 per cent of GDP by 2016-17. This was accepted by the new Finance Minister Arun Jaitley in his maiden Budget of 2014-15. But in the Budget for 2015-16, he deferred the target to 2017-18.