HOW TO FISC IT

Govt changes stance on fiscal consolidation, will make debt the primary target

- INDIVJAL DHASMANA

The Modi government 3.0 committed itself to bringing down the fiscal deficit, which is an excess of expenditure over revenues, to below 4.5 per cent of gross domestic product (GDP) next financial year, but did not specify the target after that year.

On the other hand, Finance Minister Nirmala Sitharaman stated in her latest Budget speech: "From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central government debt will be on a declining path as percentage of GDP."

Till then, the Centre has been announcing fiscal deficit targets along with those for revenue deficit, which is an excess of expenditure such as salaries and pension for current needs over revenues from current streams such as taxes and non-tax receipts, and the debt to GDP ratio.

As such, the government is changing its stance on fiscal consolidation to primarily target the debt to GDP ratio. The resultant reduction of fiscal deficit and revenue deficit will hinge on that goal.

"Yes, it is a new approach that the government has spoken about. And so each year's calibration will be based on what will be a percentage which will keep our debt on a reducing path now that will, of course, be set out closer to the year when it comes into effect," Finance Secretary TV Somanathan elucidated at a post-Budget press conference on Tuesday.

He further explained that it is not the intention of the government to focus on a deficit number but rather to look at what will keep reducing the government debt-GDP ratio in normal years.

Changed stance