Union budget: fiscal deficit target raised to 3.8% from 3.3% for fiscal year 20

NEW DELHI: On Saturday, the government raised the fiscal deficit target to 3.8 percent of GDP (gross domestic product) from 3.3 percent previously linked for 2019-20 due to income shortages.

We estimate a fiscal deficit of 3.8 percent in RE (revised estimate) 2019-20 and 3.5 percent for BE (budget estimate) 2020-21. This estimate is consistent with the government's permanent commitment to macroeconomic stability, said finance minister Nirmala Sitharaman said while presenting the 2020-21 Budget.

The government has used an 'escape clause' under the Fiscal Responsibility and Budget Management Act (FRBM) that gives it room to relax the fiscal deficit roadmap in times of stress.

Section 4 (2) of the FRBM Act establishes a trigger mechanism for a deviation from the estimated fiscal deficit due to structural reforms in the economy with unanticipated fiscal implications. Therefore, I have taken a 0.5 percent deviation, consistent with Section 4 (3) of the FRBM Act, both for RE 2019-20 and for BE 2020-21, he said.

Live plus The 'escape clause' allows the government to breach its fiscal deficit target by 0.5 percentage points in times of severe economic stress, including periods of structural change and those in which growth falls sharply.

Consequently, the return path is being presented to Parliament as part of the Declaration of the medium-term fiscal policy cum strategy. This fiscal route commits us to the fiscal consolidation route without compromising the investment needs of public funds, he said.