Govt may have kept fiscal deficit lower for Q1FY20, days ahead could be tough; analysts tell why

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Updated: August 1, 2019 2:31:35 PM

Even as the government may have kept its fiscal deficit lower for the first three months, maintaining the same performance throughout FY20 could be a challenging task, a report said.

Loan against insurance policy and mutual fundThe fiscal deficit was recorded at Rs 4.32 lakh crore at the end of Q1FY20 compared to the full-year target of Rs 7.04 lakh crore in absolute terms. Image: Reuters

Even as the government may have kept its fiscal deficit lower for the first three months, maintaining the same performance throughout FY20 could be a challenging task, a report said. Containing fiscal deficit at 3.3 per cent of GDP during the ongoing fiscal could be tough as it would be contingent on the goods and services tax (GST) collections which could be impacted by the slowdown in the economy, CARE Ratings said in a report. In April-June period of 2019-20 fiscal year, the financial position of the government showed that it has met 61.4 percent of its fiscal deficit target, lower than the 68.7 per cent budgeted target in the corresponding period last year.

“At present, we can’t rule out that expenditure cuts may be required to prevent a fiscal slippage, if the revenue targets are missed. While the market will continue to monitor the evolving fiscal trends, the size and timing of the sovereign bond issuance would impart a disproportionate effect on G-sec yields in the remainder of 2019,” Aditi Nayar, Principal Economist, ICRA said.

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Some experts are also of the view that lower fiscal deficit was achieved by the government on account of capital expenditure slowdown and the government reversing the traditional trend of front loading expenditure to maintain fiscal prudence.

The fiscal deficit was recorded at Rs 4.32 lakh crore at the end of Q1FY20 compared to the full-year target of Rs 7.04 lakh crore in absolute terms. The Modi government has kept the fiscal deficit target at 3.3 per cent, unchanged from the last year.  Fiscal deficit is the difference between government’s earning and expenditure.

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