oppn parties Fiscal Deficit, Extra Borrowings and GDP

News Snippets

  • Media person Rajat Sharma resigns as DDCA president
  • Shiv Sena, NCP and Congress postpone meeting the governor of Maharashtra
  • Shiv Sena not to attend the NDA meeting on 17th November, says break up "a formality"
  • Shiv Sena says that the confidence the BJP is showing about forming the government in Maharashtra is based purely on its expectation of getting numbers through horse trading
  • Anil Ambani resigns as director of the bankrupt Reliance Communications
  • India beat Bangladesh by an innings and 150 rums inside three days in the first Test. Indian pacers excel after Mayank Agarwal's double century
  • Sena-NCP-Congress work out a common minimum programme, will form the government soon and it will last 5 years, says Sharad Pawar
  • Income Tax Appellate Tribunal upholds the decision to withdraw the charitable status of Young India, making it liable to pay Rs 145 in income tax. Rahul Gandhi and Priyanka Vadra are the majority shareholders in the company
  • CBI raids offices of Amnesty International across India
  • Supreme Court quashes NCLAT order against Arcelor Mittal and paves the way for the company to take over ailing Essar Steel
  • Finance Minister Nirmala Sitharaman says concerns of telcos will be addressed and no company will close down
  • Government thinking of providing higher insurance coverage on bank deposits
  • Mayank Agarwal scores a double century as India take firm grip on the first Test versus Bangladesh
  • Supreme Court warns Rahul Gandhi to be more careful in future but drops contempt proceedings in the "chor" case
  • In a flip-flop, Vodafone CEO says sorry to the government, sys no plan to exit India
Supreme Court dismisses plea for review in Rafale case, says no need for roving inquiry, maintains clean chit to government
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Fiscal Deficit, Extra Borrowings and GDP

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
The government has decided to borrow Rs 50000cr via the G-Sec market in the remainder of the fiscal year. This obviously means that fiscal deficit (FD) targets are not being kept in check and the target of fiscal deficit of 3.2 of GDP this fiscal is under stress. The last time the government did this was when it borrowed Rs 90000cr in FY12 and then the fiscal deficit target was revised from 4.6 to 5.9% of the GDP. This year, the additional money that the government is seeking to borrow will take the deficit to around 3.5% of the GDP which is within the FRBM norms.

Why this urgent need to borrow funds and why choose the G-Sec route? Let us take the second question first. Experts have pointed out that the government could have drawn its surplus balance with the Reserve Bank instead of borrowing in an already nervous G-Sec market. Other experts believe that this borrowing is the result of fiscal slippages on account of shortfall in RBI dividend and revenue loss in excise due to implementation of GST. That more or less answers the first question.

Then there is the question of economic slowdown. Bank credit is hovering around negative figures and industries are saddled with surplus capacity. Consumption is not rising as households are stressed due to food inflation and rising healthcare and education costs. Revenue collections have fallen due to GST rate cuts. State finances are already in severe disarray. In such a scenario, Central government spending has to increase to give a push to the GDP. The government had shown exemplary restraint in the last three years and had adhered to FD targets. If the current deviance is not made a habit then it is not such a bad deal and might in fact be good in the long run.