Budget 2018: Modi government expected to slip on fiscal deficit target, and that’s perfectly OK

Budget 2018: Finance Minister Arun Jaitley in his Union Budget 2018 speech on February 1 is expected to announce a slippage in the fiscal deficit target for 2017-18. And, what’s more, there is no need to panic! That’s what a majority of economists, experts and fund managers surveyed in a pre-Budget 2018 poll by have to say about India’s fiscal deficit and government’s fiscal policy. Out of the 21 experts surveyed by Financial Express Digital, as many as 18 expect the government to slip up on the fiscal deficit target of 3.2% for the current financial year FY18. And, if the expectation is that the government will marginally relax fiscal deficit targets – then does that mean Budget 2018 will hold good news for common man, salaried taxpayers, job-seekers corporates and agriculture sector?

Fiscal deficit targets are set as a percentage of India’s GDP. In Budget 2017, FM Arun Jaitley had set a fiscal deficit target of 3.2% for FY-18 and that of 3% for FY-19. Fiscal discipline and the ability to meet fiscal deficit targets are one of the key economic indicators that ratings agencies, investors and economists look at when assessing the economic growth and investment potential of a country. Thus, any widening of the fiscal deficit is usually looked at warily by experts – both domestic and global. However, for this year, experts are of the view that there are valid reasons for Jaitley to ease a bit on the fiscal deficit front in Budget 2018.

Pre-Budget 2018 Survey: Experts say don’t push panic button on fiscal deficit

Says Vikas Vasal, National Leader – Tax at Grant Thornton India, “In view of the current economic situation, it is imperative that government steps up spending on infrastructure and rural development, and other schemes to boost employment across sectors (in Budget 2018).” “Therefore, a minor adjustment to the fiscal deficit road map, should not be viewed negatively. It would provide necessary support to overall economic growth,” says Vasal, as part of the survey participation. Concurs, Abhishek Goenka, Partner at PwC, “In the short term, a slippage is perhaps desired as there is an urgent need to increase capital investment and job creation.”

Budget 2018: FM Jaitley may announce slip up in fiscal deficit target

Budget 2018: Out of the 21 experts surveyed by Financial Express Digital, as many as 18 expect the government to slip up on the fiscal deficit target of 3.2%.


Sujan Hajra, Chief Economist at Anand Rathi is of the view that India’s recent growth performance has not been satisfactory. “Fiscal policy has a counter-cyclical role and this is an appropriate time to push growth through stronger government expenditure in Budget 2018. A slight and temporary departure from FRBM target should not be interpreted as a delineation from the objective of fiscal prudence,” he tells FE Online. According to Sahil Kapoor, Chief Market Strategist at Edelweiss, the market participants already expect a 20 basis points slip in either FY-18 or FY-19 numbers.

Two leading economists – one from a global firm and another from a finance company – who do not wish to be named agree that a relaxation in fiscal deficit target by around 20 basis points is acceptable. “A marginal slippage of less than 20 basis points is expected. Anything more than that will put the fiscal deficit target for FY19 in danger as well, which is not likely to happen,” says one while participating in the pre-Budget 2018 survey. “A slight increase of about 20-25 bps in lieu of growth will not be a worry,” believes the other.

Importance of fiscal deficit target in Budget 2018

Some experts who participated in the survey by FE Online are of the view that fiscal prudence is an important signal. Rusmik Oza, Head-midcaps at Kotak Securities believes that the government should stick to fiscal deficit targets. “It sends a very positive signal to the world, rating agencies and investors about the governments intent of sticking to fiscal discipline,” Oza tells A senior economist at a leading private bank – who wishes to remain anonymous – also believes that improvement in macroeconomic indicators, external balances and business rankings have been key area of success for the government. “Such positive trend should continue to attract investments and position India with a stable macroeconomic landscape,” he says. On the other hand, Sachchidanand Shukla, Chief Economist, Mahindra Group does not expect the government to announce any revision in fiscal deficit targets. “The government will not slip up on the fiscal deficit target because it has actually won brownie points and macro credibility on this front. The government would not want to fritter it away,” he tells FE Online.

Budget 2018 – populist or reforms-oriented?

Will Budget 2018 be populist – with goodies for common man and corporates? Or will it be reforms-oriented? Union Budget 2018 is expected to strike a middle ground between populism and reforms push, say as many as 17 experts out of 21. None of the experts believe that the Budget will be populist – something that PM Narendra Modi has himself hinted at. The remaining 4 experts expect an out-and-out reforms-oriented Budget 2018. “Budget 2018 is expected to be reforms-oriented. The last full Budget, in my view, is expected to be impactful,” says Dhirendra Kumar, CEO at Value Research. Agrees Bidisha Ganguly, Chief Economist at CII. “Direct tax reform is expected to be the next area of reform to be explored in the Budget,” she tells FE Online. Madan Sabnavis, Chief Economist at CARE Ratings predicts that Budget 2018 will be “more household friendly within the limit set by fiscal deficit tragedy”.

Budget 2018: FM Jaitley's Union Budget to strike a middle ground

Budget 2018: Union Budget 2018 is expected to strike a middle ground between populism and reforms push, say as many as 17 experts out of 21. None of the experts believe that the Budget will be populist.


Radhika Rao, Economist at DBS Bank does not expect government’s “commendable track record in keeping the fiscal books in order in recent years (low oil prices also lent a hand) to be watered down by an aggressively populist budget for FY-19”. Jaideep Arora, CEO at Sharekhan draws inference from the government’s recent experience of bold reforms. “The government has clearly shown its ability to take tough decisions. Hence, we expect the Finance Minister to strike a right balance between populism and fiscal prudence; and also take necessary measures to support the recovery in economy,” Arora tells FE Online.

The bottom line is that even though Union Budget 2018 – the last full Budget of Modi government before Lok Sabha polls 2019 – may look to increase public expenditure to spur economic growth, it will be done without relaxing the fiscal deficit target too much.