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Budget 2020: FY20 fiscal deficit revised to 3.8%, pegged to be 3.5% for FY21

Budget 2020 Updates: Sitharaman revised 2019-20 fiscal deficit estimate and announced a target for 2020-21.

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Union Finance Minister Nirmala Sitharaman on Saturday said that fiscal deficit in Financial Year 2019-20 is estimated to be at 3.8% as she set a fiscal deficit target of 3.5% for 2020-21.

"We estimate a fiscal deficit of 3.8% in RE 2019-20 (revised estimate) and 3.5% for BE 2020-21 (budget estimate). This estimation is consistent with Government’s abiding commitment to macroeconomic stability," Sitharaman said as she presented the Budget 2020 in Lok Sabha. 

“Section 4(2) of the FRBM Act provides for a trigger mechanism for a deviation from the estimated fiscal deficit on account of structural reforms in the economy with unanticipated fiscal implications. Therefore, I have taken a deviation of 0.5%, consistent with Section 4(3) of FRBM Act, both for RE 2019-20 and BE 2020-21," she said.

In order to settle the debate over the credibility and transparency of the projected fiscal numbers, Sitharaman said, “Let me assure the House that the procedure adopted is compliant with the FRBM Act. This is also consistent with the practices hitherto followed.”

"...the return path is being laid before the parliament as a part of Medium Term Fiscal Policy cum Strategy Statement. This fiscal path commits us to the path of fiscal consolidation without compromising the needs of investment out of public funds," she said. 

The Finance Minister's estimate of fiscal deficit for 2020-21 is consistent with government’s abiding commitment to macroeconomic stability as part of the Strategy Statement 2020-21, the government said un a statement. 

She added that a fundamental overhaul of centrally sponsored schemes and central sector schemes is necessary to align with emerging social and economic needs and to use scarce public resources optimally.

The Finance Minister also proposed a 21% increase in capital expenditure for the FY 2020-21. The Budget further announced Rs 22,000 crore for equity to fund certain specified infrastructure finance companies providing much needed long term finance to the sector.

The budget projects a 10% estimated nominal growth of GDP for 2020-21 on the basis of trends available. 

“Recently the government has undertaken very significant tax reforms for boosting investments. However, expected tax buoyancy will take time,” she noted. 

Emphasising the importance given to strengthen the spirit of co-operative federalism, Sitharaman announced the acceptance of the first report of XV Finance Commission in substantial measure. 

The Budget proposes to transfer to the GST Compensation Fund balances due out of collection of the years 2016-17 and 2017-18, in two instalments. Hereinafter, transfers to the fund would be limited only to collection by way of GST compensation cess.

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