The Indian government is likely to breach its fiscal deficit target of 3.3 percent set for the financial year 2019-20. A senior official told Bloomberg, on the condition of anonymity, that the budget deficit could widen to 3.8 percent of the GDP this year.
As per a clause introduced by the NK Singh committee into the FRBM Act during the Modi government's first term, the fiscal deficit is allowed a slippage of 0.5 percent of the GDP in case of extraordinary circumstances like acts of war, structural reforms in economy that lead to unanticipated fiscal implications or a collapse in farm output.
Investors, especially from overseas, look at fiscal budget targets as an indicator of financial discipline.
The Modi government has previously breached the fiscal target in the previous two years- in FY19 by 1 percentage points and in FY 18 by 3 percentage points (due to introduction of GST that year which hurt government revenue).
In the current fiscal year, amid slowing economic and consumption growth, the government has already seen slippages in tax collections and announced sops to companies to push investments, increasing the possibility of another year of breach in fiscal deficit target.
Industry experts like rating agency Fitch have already raised the fiscal deficit target to 3.6 percent in FY20. Further, the latest data from Controller General of Accounts showed that the government had reached 115 percent of its full-year target in the first 8 months.
Meanwhile, the official first estimate of GDP growth published by the government on Tuesday showed that the Indian economy is estimated to grow at 5 percent in FY20. In FY19, the country registered GDP growth at 6.8 percent.