IMF welcomes India's fiscal deficit target

The IMF has welcomed the fiscal deficit target set by India in its annual budget and noted that the country is returning to the path of gradual fiscal consolidation.

“We can say we welcome the FY fiscal year 2019 budget targets and the target for a fiscal deficit of 3.3 per cent of GDP. Thus, returning to the path of gradual fiscal consolidation while keeping in mind the need to provide support to the nascent economic recovery in India,” Gerry Rice, IMF Director of Communications Department told reporters at his fortnightly news conference.

The budget aims at a deficit that is smaller than the deficit that was expected in 2017 to 2018, and that is also what IMF staff had been recommending, he said.

“We think the budget assumes the tax revenue will rise faster than the value of transactions in the economy, so it’s ambitious, as it assumes the government will be able to collect higher tax revenue from the same amount of consumption and income,” Rice said.

There were also some implementations with the new goods and sales tax in 2017, so if these implementation issues persist than tax revenue collection could fall short of the budget, he noted.

“There are also some initiatives in the budget that are presently unfunded and the fiscal implications of these we need to look at a bit more closely as more details become available,” Rice said.

The IMF is looking at these potential slippages on the revenue side or higher outlays on these new policy initiatives, because they could result in cuts to capital  expenditures, which it feels are important to support medium-term growth.

Responding to a question, Rice said the budget stresses rural health, social welfare issues, but their budgetary outlays are broadly unchanged.

“And the government has proposed offering farmers a minimum support price of 1.5 times cost of production, and as you say, the budget speech also announced a flagship national healthcare scheme of Rs 0.5 million annually to cover 500 million beneficiaries,” he said.

Last month, the IMF in its World Economic Outlook update released in Davos, Switzerland, projected a 7.4 per cent GDP growth for India in 2018 and 7.8 per cent in 2019.