After Moody’s, this rating agency says that Modi govt could miss fiscal deficit target; here’s why

By: | Published: November 26, 2018 3:49 PM

The Narendra Modi government has assured several times that despite financial year 2018-19 being a poll year, it will stick to its fiscal deficit target of 3.3% of the Gross Domestic Product (GDP).

The Narendra Modi government has assured several times that despite financial year 2018-19 being a poll year, it will stick to its fiscal deficit target of 3.3% of the Gross Domestic Product (GDP). The Narendra Modi government has assured several times that despite financial year 2018-19 being a poll year, it will stick to its fiscal deficit target of 3.3% of the Gross Domestic Product (GDP).

The Narendra Modi government has assured several times that despite financial year 2018-19 being a poll year, it will stick to its fiscal deficit target of 3.3% of the Gross Domestic Product (GDP). However, after Moody’s, now India Ratings has said that India will not be able to meet the target, mainly due to the shortfall in revenues.

Earlier, rating agency Moody’s had said that the excise duty cut of Rs 1.5 a litre on petrol and diesel in October would lead to fiscal slippage by 0.1 percentage point to 3.4%. India Ratings is expecting India’s fiscal deficit to be 3.5% for the third year in a row. “This will be the third consecutive year that the fiscal gap number will be at 3.5 per cent,” India Ratings said.

“.. the slippage in central government’s fiscal deficit in FY19 is likely to be INR 399 billion (Rs 39,900 crore). Fiscal deficit in FY19 is estimated to be INR 6.67 trillion (Rs 6,67,000 crore)  as against the budgeted Rs 6.24 trillion (Rs 6,24,000),” the rating agency said in a report.

The fiscal slippage will be mainly on account of a shortfall in indirect taxes and non-tax revenues, it said. India Ratings said that the government is likely to witness a tax revenue shortfall of Rs 22,400 crore, while non-tax revenue is also expected to be lower by Rs 16,000 crore. The government is also running behind on its disinvestment target, which has been just Rs 15,247 crore against the budgeted target of Rs 80,000 crore.

“By reducing capital expenditure, the government will again try to reduce the adverse impact of both increased revenue expenditure and shortfall in receipts on the fiscal deficit,” it added.

The government has cut expected expenditure in the second half of the financial year by Rs 70,000 crore, which is likely to offset a part of the revenue shortfall.

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