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Union Budget 2019: Govt lowers fiscal deficit target to 3.3%, experts raise doubts

While the Modi government has favoured fiscal prudence over populism in Union Budget 2019, experts believe the lowered fiscal deficit target will be a tough nut to crack

twitter-logo BusinessToday.In   New Delhi     Last Updated: July 5, 2019  | 19:29 IST
Union Budget 2019: Govt lowers fiscal deficit target to 3.3%, experts raise doubts
Union Budget 2019: FM Nirmala Sitharaman said the government will take up startegic disinvestments of CPSEs on priority to meet the fiscal deficit target.

In its first Union Budget after returning to power, the Modi govt revised its fiscal deficit target for the financial year to 3.3 per cent. The Interim Budget presented earlier this year had pegged the fiscal deficit target at 3.4 per cent.

To this end, the government has proposed to pursue strategic disinvestment of select central public sector enterprises (CPSEs) on priority. In the Budget, the government has set an enhanced target of Rs 1.05 lakh crore for the ongoing financial year.

FULL COVERAGE:  Union Budget 2019

"In view of current macro-economic parameters, Government would not only reinitiate the process of strategic disinvestment of Air India, but would offer more CPSEs for strategic participation by the private sector," Finance Minister Nirmala Sitharaman said in her maiden Budget speech.

Made with Flourish

Several experts, however, did not second the Modi government's optimism towards the fiscal deficit target.

"We believe it will be a struggle as the revenue assumptions do look optimistic. Plus, the government has assumed higher nominal GDP growth. Given our view of lower growth, tax buoyancy is likely to disappoint and will require expenditure pruning to meet the budgeted fiscal deficit target. However, the positive overall signal should supersede these concerns for now," said Nomura Securities.

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"Commitment to restrict fiscal deficit at 3.30 per cent compared to 3.40 per cent is a good intent but we need to look at the revenue assumptions more closely to draw more comfort. A partial dependence on external markets for government borrowings may help the govt meet the borrowing targets but the dynamics of currency management and its impact on yield movements should not be ignored," said Joseph Thomas, Head of Research, Emkay Wealth Management.

(Edited by Vivek Punj)

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