New Delhi:  Fiscal deficit target of 3 per cent for 2017-18 looks difficult as the debt dynamics of the country show “stickiness”, rating agency Crisil said on Saturday. “Three per cent looks like a stiff task at this juncture for fiscal deficit. When the economy needs help, we need to move to a range that is going to provide the government some flexibility,” D.K. Joshi, Chief Economist at Crisil, told BTVi in an interview.  “The debt dynamics show stickiness. We have not been able to bring down the debt-GDP ratio, which is quite high for India. It complicates matters,” Joshi said. The economist said that the government needs to come up with substantial steps to push up the revenues to maintain fiscal prudence for the next two to three years.  The borrowing target, however, he said is not expected to be very large and in line with the fiscal deficit target.

“The borrowing will not be too large if fiscal deficit target is three per cent. I don’t see borrowings as significant or at the level that would spook the stock market and reverse the gains.” In FY17, spectrum or excise duty on oil that has led to revenue windfall are all temporary measures and may reverse in the coming fiscal.  Joshi said that the concern is to improve the tax-GDP ratio in the next 2-3 years.  “Let’s see how creative the Budget is in extracting higher compliance from individuals. Though there is not much scope to raise the tax-GDP ratio in the short run,” he said. “In terms of Income Declaration Scheme (IDS), I don’t see much cushion coming from these schemes. They can’t continue forever, they should be leveraged for increasing compliance,” he added.

Joshi said that if there is any tax benefit or tweaking from the Budget, it will be for the lower income group. He said the government should focus on execution capacity so that the budget does not lie unused. The economist also said that the Central Statistical Organisation (CSO) estimate of 7.1 per cent GDP growth for 2016-17 may not be accurate as it does not take into account the data during demonetisation period.  “CSO has cut down FY17 GDP estimates downwards to 7.1 per cent from the earlier 7.6 per cent. CSO estimate doesn’t take into account the impact of demonetisation because it takes data till October into account,” he said. “Our GDP estimate is around 6.9 per cent for 2016-17. It is difficult to predict GDP in this scenario because it is unprecedented. Whatever numbers come out at this juncture, will be subject to revision,” he added.