Fiscal Deficit Current Affairs - 2020

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GoI misses its disinvestment target

Government of India misses its disinvestment target as the plan to sell Bharat Petroleum Corporation Limited (BPCL), Air India and Container Corporation of India has not been succeeded.

Highlights

The Government had planned to sell 53.3% of BPCL, 31% of Concorp as per latest market prices. The Government had set the Disinvestment target of Rs 1.05 trillion for the year 2019-20. However, it was only able to extract Rs 17,364 crores. This has increased burden on the economy of the country as the fiscal deficit of the Government has already touched 115% of the budget estimated for the year 2019-20 as far as November 30. The deficit will increase further as there are another 4 months (Dec-Mar) to go before the financial year ends. The data was released by the Controller General of Accounts.

The missing of disinvestment target has impaired its ability to meet its Fiscal Deficit target of 3.3% of GDP. The fiscal deficit is arising in spite of RBI transferring Rs 1.76 lakh crore rupees. It was widely criticized as windfall money of the government.

What is Windfall money?

Windfall money is the term used for unexpected money good fortune. The RBI transferred the windfall to the GoI on recommendation of Jalan Committee.

Air India

Among all the disinvestment targets, Air India is the least performing and at huge losses. In order to solve the problem, recently it was announced that Air India will stop issuing tickets to government agencies that owe more than Rs 10 lakh due. This included defence accounts, CBI, BSF, Enforcement Directors, customs commissioners, etc.

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Ind-Ra lowers India’s GDP growth forecast in 2019-20 to 6.1% from 6.7% in August 2019

India Ratings and Research (Ind-Ra), a part of Fitch group has lowered India’s gross domestic product (GDP) forecast for financial year (FY) 2019-20 to 6.1%. This was second downgrade in the last two months. Earlier in August 2019, Ind-Ra had revised GDP growth estimate to 6.7% from its earlier forecast of 7.3%. It has cited slowdown in both rural and urban consumption demand growth as one of the key reasons for the downward revision of GDP in its August 2019 forecast.

Ind-Ra Projections

Growth Forecast: GDP growth in the first half of FY 2019-20 to be 5.2% and forecasts it to recover to 6.9% in 2HFY20, mainly on account of the base effect.

Government Measures: The recent measures announced by government to arrest economic slowdown are likely to support growth only in medium-to-long term. Most of the measures announced by government are essentially supply-side response to revive growth.

Bigger challenges faced by economy: It is from demand side as consumption demand has collapsed and private corporate investment is not forthcoming.

Way Forward: There is need is to take measures that will enhance disposable income and put additional money in the hands of rural and urban households. Government-initiated spend on rural infrastructure activities will help to generate large-scale employment that could add/stimulate consumption demand.

Key drivers of inflation in India: They are food and crude oil prices and they stand favourable/benign currently. They are likely to remain the same during the remainder of the financial year.

Fiscal deficit: It has been budgeted at 3.3% of GDP. It could increase to 3.6% of GDP in FY20. Additionally, current account deficit is expected to decline to 1.8% of GDP in FY20 from 2.1% of GDP in FY19, aided by softer crude oil prices. In terms of the domestic currency, Indian rupee will average 70.86 against the dollar in FY20.

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