Slower-than-projected growth in revenue, especially tax and disinvestment receipts, resulted in the Centre’s fiscal deficit in the first six months of this fiscal to be about Rs 5.95 lakh crore, or 95.3% of the full-year target, according to data released by the Controller General of Accounts on Thursday.
Slower-than-projected growth in revenue, especially tax and disinvestment receipts, resulted in the Centre’s fiscal deficit in the first six months of this fiscal to be about Rs 5.95 lakh crore, or 95.3% of the full-year target, according to data released by the Controller General of Accounts on Thursday. In the corresponding period last year, the deficit was 91.3% 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 7.5% in H1FY19 against the year-ago period. 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.
While 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, capital spending in the first half was rather robust at Rs 1.63 lakh crore, 54% of the annual target and up 11% over the year-ago period.
Subsidies in H1FY19 were reined in at the same level in absolute terms as the year-ago period at Rs 1.88 lakh crore. Thanks to improved non-tax flows (thanks mainly to RBI dividend), revenue deficit in H1FY19 was 108% of the annual target at Rs 4.5 lakh crore, while in H1FY18, the revenue deficit was 118% of the corresponding target.
“Notwithstanding the continued fiscal concerns, the high likelihood of a continuation of open market operations in the remainder of Q3 FY2019 and higher dependence on the NSSF for funding the fiscal deficit, would ease concerns on the supply of bonds and thereby cap G-sec yields,” Aditi Nayar, principal economist at ICRA, wrote.
In September, the Centre sought to calm the bond market by announcing that it would trim its gross market borrowing for the second half of FY19 by Rs 70,000 crore, taking the borrowing for the full year to Rs 5.35 lakh crore against the budgeted Rs 6.05 lakh crore. Instead, it will reduce buybacks and tap the National Small Savings Fund more aggressively to finance fiscal deficit.
Bulk of the shortfalls in tax revenues could be attributed to indirect taxes, especially goods and services tax (GST). Indirect taxes grew by only 4.7% in H1FY19 as against a required rate of 19.2% where as direct taxes rose by 13.4% compared with required rate of 14.4%. However, non tax-tax receipts grew 34.8% in H1FY19, and stood at 44.5% of the budget estimate for the year as against 28% of the target a year ago. In H1FY19, disinvestment receipts were only Rs 9,945 crore or 12.4% of the FY19 target of Rs 80,000 crore.