Fiscal deficit at 3.8% in 2019-20(Re) and 3.5% for 2020-21(Be)

Return path committed to fiscal consolidation without compromising on investment

GN Bureau | February 1, 2021


#Nirmala Sitharaman   #finance minister   #finance ministry   #economy   #Union Budget  


With the clear intent of achieving fiscal targets and affirming the government’s commitment towards prudent fiscal management and boosting investments, finance minister Nirmala Sitharaman proposed several measures in the Union Budget 2020-21 in Parliament on Monday.

The finance minister identified the fiscal deficit for FY 2019-20 at 3.8%(RE)  and pegged it at 3.5% (BE) for FY 2020-21 which is consistent with government’s abiding commitment to macroeconomic stability as part of Medium Term Fiscal Policy cum Strategy Statement 2020-21. She said, “Section 4(2) of the FRBM Act provides for a trigger mechanism for a deviation from the estimated fiscal deficit on account of structural reforms in the economy with unanticipated fiscal implications. Therefore, I have taken a deviation of 0.5%, consistent with Section 4(3) of FRBM Act, both for RE 2019-20 and BE 2020-21.”

In order to settle the debate over the credibility and transparency of the projected fiscal numbers, she said, “Let me assure the House that the procedure adopted is compliant with the FRBM Act. This is also consistent with the practices hitherto followed.”

Sitharaman further added that a fundamental overhaul of Centrally Sponsored Schemes and Central Sector Schemes is necessary to align with emerging social and economic needs and to use scarce public resources optimally.

The FM proposed a 21% increase in capital expenditure for the FY 2020-21. The Budget further announced Rs. 22,000 crore for equity to fund certain specified infrastructure finance companies providing much needed long term finance to the sector.
 
The budget projects a 10% estimated nominal growth of GDP for 2020-21 on the basis of trends available. The Finance Minister notes “Recently government has undertaken very significant tax reforms for boosting investments. However, expected tax buoyancy will take time.”

Emphasising the importance given to strengthen the spirit of co-operative federalism, Sitharaman announced the acceptance of the 1st report of XV Finance Commission in substantial measure. The Budget proposes to transfer to the GST Compensation Fund balances due out of collection of the years 2016-17 and 2017-18, in two instalments. Hereinafter, transfers to the fund would be limited only to collection by way of GST compensation cess.
 

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