While the fiscal target of 3.5 per cent of GDP for 2016-17, is a number to envy, it has also raised a few eyebrows. The nominal GDP growth assumed for 2016-17 is achievable, but the Centre has pegged back capital expenditure to keep the fisc in check.
If one were to go by the fiscal deficit target, the nominal GDP growth works out to 11 per cent for 2016-17, as against an 8.6 per cent growth in 2015-16. After the Economic Survey put out a not-so-rosy growth estimate in real GDP (from 7.6 per cent in 2014-15 to 7-7.5 per cent in 2016-17), is the jump in nominal GDP realistic?
The GDP deflator (ratio of nominal to real GDP) — another measure of inflation — was more or less flat (0.9 per cent growth) in 2015-16 when compared to 2014-15. But this is expected to go up in 2016-17, due to lower inflation last year. Even if we assume 7.5 per cent growth in real GDP, the growth in nominal GDP looks achievable.
But the Centre has cut back capital expenditure. From robust 21 per cent growth in 2015-16, a modest 3.9 per cent growth is budgeted for 2016-17.
There is however a risk to achieving this fiscal target nonetheless. Divestment targets and estimated amounts from spectrum auctions, can upset the apple cart. The budget assumes ₹36,000 crore divestment proceeds from stake sales in PSUs and ₹20,500 crore by way of strategic sales. A substantial amount of around ₹98,900 crore has been budgeted from spectrum auctions. But whether telecom companies will spend this kind of money next fiscal year remains to be seen.
The revision in government salaries in line with the pay commission recommendations can also pay spoilsport. For now, an interim provision has been made to factor this in. Overshooting on this figure can widen the fisc.