Net tax revenue may be 15% less than budgeted, but Rs1.6-lakh-cr extra inflows from RBI and telcos to help.
The Centre is staring at the highest-ever shortfall of about Rs 2.5 lakh crore (15%) in its net tax revenue from the budgeted level this year and a decline of 2 percentage points or thereabouts in nominal GDP will likely be an additional pressure point in its fiscal management. Yet, certain windfall receipts from RBI and telecom companies, recourse to off-budget NSSF loans to part-finance subsidy obligations, and some other savings like that on PM-Kisan would make its task of meeting the fiscal deficit target of 3.3% of the gross domestic product (GDP) far easier than it outwardly seems.
Last year, the tax revenue (post-transfer to states) turned out to be Rs 1.64 lakh crore lower than the budget estimate (BE) and an expenditure cut of Rs 1.3 lakh crore or 5.35% was not sufficient to avoid a slippage from the charted fiscal consolidation path. Against the BE of 3.3%, a fiscal deficit of 3.4% was recorded in FY19.
This time around, however, even a much bigger shortfall in net tax receipts — Rs 90,000 crore on account of corporate tax cut alone — may not require the deficit to widen much, though many budget numbers will undergo major revisions due to a series of post-Budget developments.
An additional Rs 58,000 crore received from RBI, thanks to the review of its economic capital framework, and a tidy sum of Rs 80,000 crore or so to be collected from two of the largest telcos, Bharti Airtel and Vodafone Idea, as licence fee-SUC dues, as per the recent Supreme Court, order are the two windfall gains.
Additionally, the government may also seek Rs 30,000 crore as interim dividend from the central bank, close to the Budget presentation.
While capital expenditure is unlikely to be compromised, given the economic slowdown, a more-than-modest cut in overall expenditure could be expected.
The expenditure compression may, however, turn out be less than last year’s. Some of the spending cut may not be real as these will be window-dressing of the Budget. For instance, while the required amount will be released to the Food Corporation of India (FCI) to undertake its procurement operations, of the food subsidy dues to the entity, some Rs 50,000 crore may be converted to NSSF loans. This is a deferral of payments from the Budget, and this route has been resorted to by the Centre in recent years, even as it raised questions of fiscal probity.
The government could also make bank loan arrangements for about Rs 15,000 crore for fertiliser manufacturers/traders to keep the budget expenditure on fertiliser subsidy lower than Rs 80,000 crore budgeted for FY20.
Expenditure on the PM-Kisan scheme, under which about 14 crore farmers are offered Rs 6,000 per annum each as income support, the Centre could save at least Rs 20,000 crore this fiscal. In the first seven months of this fiscal, the budget expenditure on this head was Rs 28,000 crore as only 7.63 crore farmers got enrolled due to lack of cooperation from some states and Aadhaar seeding of beneficiaries. The budget allocation for the scheme is Rs75,000 crore for FY20.
In its latest bimonthly monetary policy statement on October 4, RBI cut its growth projection for the domestic economy by a sharp 80 bps to 6.1%, citing that the slump in real GDP growth to 5% in the first quarter of FY20 has been followed by “generally weaker high frequency indicators for the second quarter”. Assuming GDP deflator of 4%, that means nominal GDP expansion of around 10%, against 12% budgeted.