The Centre has projected a steady improvement in the economy over the next two years, with revenue gains from the Goods and Services Tax (GST) and demonetisation as well as a 25 per cent hike in its capital expenditure by 2020.
“Any shocks to tax collections due to the GST will be absorbed in the current fiscal and the tax-GDP ratio will remain at the level of 2016-17,” said the Medium-Term Expenditure Framework Statement, which was tabled in Parliament on Thursday.
However, the MTEFS is hopeful that the tax-to-GDP ratio will rise 30 basis points to 11.6 per cent in 2018-19, and further to 11.9 per cent in 2019-20. This is predicated on the expansion of the tax base with GST, and the increased surveillance post-demonetisation.
Ahead of the release of the second volume of the Economic Survey in Parliament on Friday, the report expects nominal GDP growth to increase from 11.3 per cent in the current fiscal to 12.3 per cent in 2018-19 and 2019-20.
It has also estimated a marginal improvement in the fiscal deficit from 3.2 per cent in 2017-18 to 3 per cent in the next two years, and has projected the revenue deficit to fall from 1.9 per cent this fiscal to 1.4 per cent in 2019-20.
The MTEFS is a part of the statutory requirements under the Fiscal Responsibility and Budget Management Act, 2003, and provides a three-year rolling target for the expenditure indicators, along with underlying assumptions and risks.
The report has projected capital expenditure to be maintained at 1.8 per cent of GDP in the medium term, but in absolute numbers it will increase from ₹3.09-lakh crore in 2017-18 to ₹3.41-lakh crore in 2018-19 and to ₹3.9-lakh crore in 2019-20.
Defence gets lion’s shareDefence will continue to get the largest capex share, but the push to sectors such as transport and energy will continue.
The Centre’s total spending is projected to rise from ₹21.46-lakh crore in 2017-18 to ₹23.4-lakh crore in the next financial year, and to ₹25.95-lakh crore in 2019-20.
Cashing in on the direct benefit transfer scheme, the Centre hopes to lower its expenditure on major subsidies from 1.4 per cent of GDP in 2017-18 to 1.3 per cent of GDP in 2019-20.
“The ultimate aim of the government is to eliminate the subsidy on LPG cylinders by end March 2018,” it said, adding that it is also working on reducing the subsidy to kerosene.
Accordingly, the petroleum subsidy is estimated to reduce to ₹18,000 crore in 2018-19 from ₹25,000 crore in the current fiscal. It is expected to decline to a mere ₹10,000 crore in 2019-20.
The outgo on fertiliser subsidy will be maintained at ₹70,000 crore up to 2019-20. The food subsidy bill will rise to ₹1.75-lakh crore in 2018-19 and ₹2-lakh crore in 2019-20, from ₹1.45-lakh crore this fiscal due to repayment obligations of the Food Corporation of India to the National Small Savings Fund.