Limits Q4FY20 expenditure at 25% of the Budget estimate; annual spending may compress to Rs 2.2 lakh crore, against Rs 27.86 lakh crore budgeted
Amid continued deceleration in tax revenue growth, the Centre has further slowed the pace of spending in November, the latest data on government finances released on Tuesday showed, reinforcing the chances of a massive spending cut in FY20.
The year-on-year growth in the Centre’s total budgetary expenditure had risen from (-)11% in June to 34% in September, but then slowed to 5.5% in November.
Hit by a huge revenue shortfall, the Centre has imposed strict curbs on revenue expenditure. The Centre’s decision to cap Q4FY20 spending at 25% of the budget estimate for the full financial year compared with the norm of 33% itself could result in an annual spending compression of Rs 2.2 lakh crore, versus Rs 27.86 lakh crore budgeted.
If the trend of tax receipts in recent years are any indication, the shortfall in net tax receipts could be as high as Rs 3 lakh crore. In April-November of FY18 as well as FY19, the Centre had collected 56% of net tax receipts target while the remaining amount were collected in December-March period of the year. In April-November this fiscal, it garnered Rs 7.5 lakh crore or 45.5% of the budget estimate for the full year compared with 49.4% of the corresponding target previous year.
With the GST and direct tax revenue falling considerably short, net tax receipts (after mandatory transfers to states) grew just 2.4% in the first eight months of FY20 against the required rate (BE FY20 against FY19 actuals) of 25.3%.
Budgetary capex grew by 11% y-o-y in April-November period of this fiscal, a bit lower than 15.3% seen in the first six months of the year, but at par with the required rate to achieve the budget target.
The Centre’s fiscal deficit in April-November of FY20 came in at Rs 8,07,834 crore or 114.8% of the budget estimate for the whole of the fiscal year. In the corresponding period last year, the deficit was also at 114.8% of the for the whole fiscal.
Going by the trends in revenues and expenditure, the Centre may find it difficult to stick to the fiscal deficit target of 3.3% of GDP for the current fiscal if it does not compress spending.
Last year, as the tax growth faltered, the Centre had cut the budget size by Rs 1.3 lakh crore or 5.35% from the originally projected level (BE), yet it let the deficit slip to 3.4% of the gross domestic product (GDP) against BE of 3.3%.