Last year, the Government blinked on this uncompromising stance, fiscal deficit deepened from the targeted 3.2% to 3.5% of GDP. And the interim Budget put the fiscal deficit target for 2018-19 at 3.4% of GDP, marginally higher than the budgeted 3.3%. “Aap nirnay kijiye (you may take the call)” is what Jaitley supposedly told Prime Minister, according to an official who was present at that meeting.
The response was on more or less similar lines in the run-up to the 2016-17 and 2017-18 budgets, with the pressure for showing “flexibility” on fiscal targets even more given there was no revival in private investments and the demand destruction that followed demonetisation.
Modi’s nirnay was again the same both times: There shall be no compromise on fiscal prudence, which was highlighted in his government’s very first budget presented on July 10, 2014. Jaitley had, then, stated that “we cannot go on spending today which would be financed by taxation at a future date” while emphasising the importance of “inter-generational equity” and not leaving behind “a legacy of debt for our future generations”.
Last year, the Government blinked on this uncompromising stance, fiscal deficit deepened from the targeted 3.2% to 3.5% of GDP. And the interim Budget put the fiscal deficit target for 2018-19 at 3.4% of GDP, marginally higher than the budgeted 3.3%. The rolling targets of fiscal deficit also saw a revision over the years with the original 3% target set for 2016-17 now being poushed to 2020-21.
During the previous Congress-led UPA regime, the Centre’s gross fiscal deficit – the gap between its total spending and revenue from taxation and other non-debt receipts – shot up more than four-fold in absolute terms, from Rs 126,912 crore to Rs 515,990 crore, and from 2.7% to 5.8% of GDP between 2007-08 and 2011-12.
Only in the UPA’s last two years, were these brought down to Rs 502,858 crore and 4.4% by 2013-14. And even this was mainly due to the threat of foreign investors pulling out money, from an economy experiencing runaway inflation and imbalances both on the fiscal and external payment fronts.