Economic prospects look bright in near term: FinMin

Indian economy is showing "bright" near-term prospects, but reducing fiscal deficit to 3.5 per cent of GDP in 2016-17 is a challenge because of additional liabilities on account of pay revision, the government said today.
The Medium Term Expenditure Framework Statement, tabled by Finance Minister Arun Jaitley in the Rajya Sabha, said major subsidies are expected to decline gradually from 1.5 per cent of GDP in 2016-17, to 1.4 per cent in 2017-18 and further to 1.3 per cent in 2018-19.
The statement said macro economic stability has improved with the continuance of fiscal prudence and lower inflation particularly due to moderation in crude prices.

"In light of the encouraging performance of the economy during the previous financial year, marked by pick-up in economic growth, lower inflation, buoyant tax revenues, increasing foreign direct investment flows and the government's push to reforms in crucial areas including banking, infrastructure, power, taxation. The near term prospects for the economy look bright," it said.
It further said that there would be a challenge in reducing the fiscal deficit to 3.5 per cent of GDP in current fiscal, from 3.9 per cent in last fiscal, on account of huge burden of implementation of Pay commission recommendations.
"Keeping in view the challenge of reduction of the fiscal deficit by 0.4 per cent of GDP in a difficult year in 2016-17 with substantial additional liabilities on pay revision, the Government is quite optimistic of fully achieving the fiscal deficit target of 3 per cent by March 2018," the statement added.

Over one crore government employees and pensioners will get 2.5 times hike in basic pay and pensions under the 7th Pay Commission recommendations that will cost the exchequer annually Rs 1.02 lakh crore.

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As per the Medium Term Framework Statement, the Finance Ministry expects that proceeds from PSU disinvestments would come down to Rs 40,000 crore in 2017-18 and 2018-19, from Rs 56,500 crore in 2016-17.
GST implementation, along with other policy measures for tax revenue enhancement, would give a further boost to high tax mobilisation efforts, it said.
"The tax to GDP ratio are accordingly projected at 10.9 per cent and 11.1 per cent of GDP for 2017-18 and 2018-19 respectively," it said.

Besides, the government is planning to take proactive measures to enable enhancement of capital component of its expenditure by various ministries or departments. The results are likely to be seen from Budget 2017-18, it added.
The statement further said that the government continues to pursue its commitment to progressively bring about reforms in the overall subsidy regime.
This includes efficient targeting of subsidies to the poor and needy, while also saving scarce financial resources for investment in infrastructure and pursuit of new development programmes.
According to the statement, food subsidy bill is expected to go up from Rs 1.34 lakh crore in current fiscal to Rs 1.40 lakh in 2017-18 and further to Rs 1.45 lakh crore in 2018-19.

Petroleum subsidy payout is expected to decline from Rs 26,947 crore to Rs 21,000 crore in 2017-18. However, it is estimated to go up to Rs 21,500 crore in 2018-19.
Fertiliser subsidy, which has pegged at Rs 70,000 crore for current fiscal will remain the same in next fiscal, but may go up to Rs 72,000 crore in 2018-19.
It said state governments are coming forward to implement direct benefit transfer in kerosene in selected districts. Government has already launched DBT for LPG subsidy transfer from January 2015.
In 2016-17 fiscal, the total expenditure of the government is estimated at about 13.1 per cent of GDP.

"With continued focus on prioritisation of developmental expenditure and curtailing the growth in non developmental expenditure, the total government expenditure is estimated to be brought down to 12.4 per cent and 12.2 per cent of GDP in 2017-18 and 2018-19," the statement said.