Retaining the fiscal deficit for the current financial year at 3.9 percent of GDP, and at 3.5 percent for 2016-17, the government on Monday said a committee would review the Fiscal Responsibility and Budget Management (FRBM) Act to look into the feasibility of having a range for fiscal deficit targets instead of a set figure.
"We've carried on a big debate on the FRBM issue. Among the various views there was one on retaining the set target for this year, but have a small range for the future because the global economic situation keeps changing," Finance Minister Arun Jaitley told reporters here following his presentation of the budget for next fiscal in parliament, where he said a panel would be formed to review the FRBM Act.
"Since public investment had to be kept high, we have revised the target for the second year running," he added in making a case for having a targeted range for fiscal deficit to provide the necessary policy space to the government.
"The FRBM Act, which has done ten years... the whole thing has to be looked into holistically, from a national point of view, where we also look at the fiscal deficit of states," Finance Secretary Ratan P.Watal told reporters.
Presenting the union budget for the next fiscal in parliament. Jaitley said he had decided that prudence lies in adhering to fiscal targets, but while doing so he has also ensured that the development agenda is not compromised.
The Economic Survey last week advocated a review of the medium-term fiscal consolidation plan and recommended that the government "purchase insurance" against downside risks to the economy by increasing public investment rather than reducing the fiscal deficit.
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Jaitley on Friday made a massive push for the infrastructure and agriculture sectors, announcing a 15.3 percent rise in plan expenditure in 2016-17 over the previous year.
"The budget deals with the reality of India. There are serious challenges in agriculture, we need to address rural infrastructure, physical infrastructure and there are social sector commitments," the finance minister told reporters.
Presenting the union budget, Jaitley said the estimate of revenue deficit for this fiscal has come down to 2.5 percent from the previous estimates.
On the revenue side, Jaitley said indirect tax measures will lead to Rs.21,670 crore in additional revenue while his direct tax measures will result in a loss of Rs.1,060 crore, leading to a net revenue gain of Rs.19,610 crore.
The government's fiscal deficit target of 3.9 percent for the current fiscal "seems achievable", the 2015-16 Economic Survey said last week.
"Significant increase in revenue receipts, led by buoyant indirect tax collection, higher level of capital expenditure on the plan side, lower subsidies and enhanced untied resources transferred to the states following the acceptance of recommendations of the 14th Finance Commission" were the basis of the government's optimism on this count.
"The coming year is expected to be a challenging one from the fiscal point of view because of challenges posed by a lower-than-projected nominal GDP growth," said the survey, which was presented in parliament on Friday.
"The chances of India's growth rate in 2016-17 increasing significantly beyond 2015-16 levels are not very high, due to likelihood of persistence of global slowdown," it said.
Moody's Investors Service said earlier this month India's fiscal position will remain weaker than other emerging economies in the near term even if fiscal consolidation continued on course.
"Even if the budgetary consolidation continues, India's fiscal metrics will remain weaker than rating peers in the near term, because of the relatively high levels of deficits and debts of India's state and central governments," Moody's said in a report.