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FM to target fiscal deficit of 3.5 pc of GDP in FY18: BofA-ML

The ensuing budget is likely to fixa fiscal deficit target of 3.5 per cent of GDP in 2017-18, relaxing the 3 per cent target earlier in order to support growth, says a report.

According to global financial services major Bank of America Merrill Lynch, (BofA-ML) the financial year 2017-18 fiscal deficit target is likely to be the same as this fiscal.

“We expect Finance Minister Arun Jaitley to target a fiscal deficit of 3.5 per cent of GDP – same as 2016-17 – in 2017-18 in his February 1 Budget, easing the 3 per cent target,” BofA-ML said in a research note.

Fiscal deficit, the gap between expenditure and revenue for the entire fiscal, has been pegged at Rs 5.33 lakh crore, or 3.5 per cent of GDP, in 2016-17. According to official figures, fiscal deficit touched Rs 4.58 lakh crore, or 85.8 per cent of the budget estimate for the whole financial year, at the end of April-November.

It further noted that given that growth is stagnating at about 4.5 per cent in the old GDP series, a relaxation in the fiscal deficit target is likely. “We have always believed that the Center should relax the fiscal deficit to combat a global recession that is proving to be longer than the Great Depression,” BofA-ML added.

Moreover, the committee to review Fiscal Responsibility and Budget Management Act is expected to build in cyclicity in setting fiscal deficit forecasts by switching to a target range of 3-3.5 per cent of GDP in 2017-18 from a point target 3 per cent, it added.

The report further noted that the Ministry of Finance should net about Rs 1,500 billion from demonetisation.

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