Economic Survey 2019: Pegs FY19 GDP growth at 6.8%

“Broadening and deepening the direct tax base and stabilisation of the Goods & Services Tax (GST) are the other priorities. Improving the quality of expenditure remains the key priority. Meeting allocational requirements without diversion from the newly revised fiscal glide path remains the foremost challenge," the survey said.

For FY20-21, the revised fiscal glide path aims to achieve fiscal deficit of three percent of GDP and the Centre's debt to 40 percent of GDP by FY24-25, it stated.

“FY19 has ended with fiscal deficit at 3.4 percent of GDP and debt-to-GDP ratio of 44.5 percent (provisional). As a percentage of GDP, total central government expenditure fell 0.3 percentage points in FY19 PA (Provisional Actuals) over FY18, with 0.4 percentage point’s reduction in revenue expenditure and 0.1 percentage point increase in capital expenditure. With respect to states' finances, their own tax and non-tax revenue display robust growth in FY18 RE (revised estimate), which is envisaged to be maintained in FY19 BE (budget estimate),” the document said.

Budget 2018-19 was presented with an optimistic view on investment and trade cycle, the survey noted. The Budget reiterated the objective of fiscal consolidation and introduced a new fiscal targeting framework with focus on reducing debt and fiscal deficit.

Central government finances over the last several years have seen an improvement in the tax-to-GDP ratio, consolidation of revenue expenditure, gradual tilt towards capital spending and consistent decline in total liabilities of the Centre . All these have resulted in a progressive reduction in primary and fiscal deficits over the years, the survey said.

The survey said a comparison of PA with Budget Estimates for FY19 shows that government has been able to contain fiscal deficit at 3.4 percent of GDP by squeezing expenditure, in which the entire reduction is in revenue expenditure.

Total transfers to states have risen between FY15 and FY19 RE by 1.2 percentage points of GDP, it said. Total liabilities of the Centre (as a ratio of GDP) has been consistently declining, particularly after the enactment of the Fiscal Responsibility and Budget Management Act, 2003. “This is as an outcome of both fiscal consolidation efforts as well as relatively high GDP growth,” the survey stated.

Total liabilities of the Centre as of March stood at Rs. 84.7 lakh crore, of which 90 percent was public debt. Most of the public debt has been contracted at a fixed interest rate, making India’s debt stock virtually insulated from interest rate volatility. This lends certainty and stability to the Budget in terms of interest payments.

State budgets expanded considerably in FY18 RE over FY17 on account of increase in revenue expenditure, the survey said. On the revenue front, states’ own tax and non-tax revenue displayed robust growth in FY18 RE, which is envisaged to be maintained in FY19 BE. The document concludes there has been improvement in fiscal deficit to GDP ratio in FY18 RE when compared to FY17.

The survey also cautions that the coming year will pose several challenges on the fiscal front. There are apprehensions of slowing growth, which would have implications on revenue collection. FY19 ended with a shortfall in GST collections. Therefore, revenue buoyancy of GST would be key to improved resource position of both the Central and state governments.

Resources for Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) and Ayushman Bharat, as well as new initiatives of the new government would have to be found without compromising the fiscal deficit target as per the revised glide path, the survey mandated.

US sanctions on oil imports from Iran is likely to impact oil prices and thereby on the petroleum subsidy, apart from implications for current account balances, it added.

The15th Finance Commission will submit its report for next five years beginning April 2020. Its recommendation especially on tax devolution will have implications for Central government finances, the survey said.