Fiscal trouble for Modi govt: April-October deficit at 104% of target

By: | Updated: December 1, 2018 7:26 AM

In the corresponding period last year, the deficit was 96.1% of the relevant annual target and the government finally had to allow a 33 basis points slippage from the targeted deficit of 3.2% of GDP for FY18.

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The Centre’s fiscal deficit in the first seven months of this fiscal came in at Rs 6.5 lakh crore or 103.9% of the full-year target, largely due to slower-than-projected growth in revenue, especially indirect tax and disinvestment receipts, according to data released by the Controller General of Accounts on Friday. In the corresponding period last year, the deficit was 96.1% of the relevant annual target and the government finally had to allow a 33 basis points slippage from the targeted deficit of 3.2% of GDP for FY18.

Net tax receipts (post refunds and devolution to states) grew just 4.4% y-o-y in April-October of FY19. A y-o-y growth of 19% is required to raise the budgeted amount of Rs 14.8 lakh crore from taxes for the full year. It is widely believed that the Centre may have to apply brakes on the spending pace in the later part of the year to keep the promise of sticking to the FY19 fiscal deficit target of 3.3% of the GDP.

Even though capital spending in April-October this year seems on track at Rs 1.63 lakh crore (59% of the annual target and up 9% over the year-ago period), it could actually turn out to be a bit lower. Capex gets overstated till the fourth quarter when accounting issues are ironed out, economic affairs secretary Subhash Chandra Garg recently told FE.

Major subsidies in the first seven months of FY19 were 9% higher than the year-ago period, at Rs 2.08 lakh crore. As much as 93% of FY19 budgeted fuel subsidies has been released by October. This could weigh on revenue expenditure despite a recent drop in crude oil prices and the rise of the rupee, unless the government resorts to rolling them over to the next fiscal. Revenue deficit in April-October this year was 117.8% of the annual target at Rs 4.9 lakh crore, while in in the year ago period, the revenue deficit was 124.7% of the corresponding target.

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“These are not necessarily going to affect out fiscal deficit target,” Garg had said, adding as revenue receipts go up in the later part of the year, the fiscal deficit number gets readjusted. Some analysts however fear a fiscal slippage in FY19 as well. “The extent of a potential fiscal slippage in FY2019 would be driven by the likelihood of meeting the targets for GST, excise duty, dividends & profits, disinvestment, and the adequacy of outlays for revised MSPs, the NHPS, fuel and other subsidies,” said Aditi Nayar, principal economist, Icra.

Bulk of the shortfalls in tax revenues could be attributed to indirect taxes, especially goods and services tax (GST). Gross indirect taxes grew by only a little over 1% in April-October of FY19 as against a required rate of 19.2% where as direct taxes rose by 16.4% compared with a required rate of 14.4%.

However, non tax-tax receipts grew 34% in April-October 2018, and stood at 52.1% of the budget estimate for the year as against 33% of the target a year ago. In April-October this year, disinvestment receipts were only Rs 10,101 crore or 13% of the FY19 target of Rs 80,000 crore.

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