3.3% fiscal deficit target likely to be breached, say experts

Meeting the fiscal deficit target of 3.3 per cent of GDP for the current fiscal could be a challenge for the government, given the shortfall in GST collections, rising expenditure and slowing factory output, say experts.

Moreover, some populist announcements by the government to woo voters ahead of general elections would make the task of achieving the fiscal deficit target even more daunting.

Some experts have already projected that the fiscal deficit could rise to 3.5 per cent of GDP, more than the budget estimate of 3.3 per cent of GDP for the current fiscal.

The government’s fiscal deficit touched 114.8 per cent of the full-year estimates at the end of November.

The government had budgeted fiscal deficit of Rs 6.24 lakh crore, or 3.3 per cent of GDP, for FY19. Fiscal deficit for April-November stood at Rs 7.16 lakh crore, or 114.8 per cent of the target. It is slightly more than the 112 per cent recorded in the same period last fiscal.

The pressure on government finances mainly arises from indirect taxes and the non-tax revenue side, particularly disinvestment.

“As a result of revenue shortfalls from GST collections, lower excise duty and below target disinvestment receipts, we expect the Central Government fiscal deficit target to slip to about 3.4 per cent of GDP.

“Increased expenditure on subsidies or income transfers to farmers would make achieving the budgeted fiscal deficit target even more challenging, particularly given these revenue constraints,” Moody’s Investors Service Vice-President, Sovereign Risk Group, William Foster, told PTI.

Increased expenditure on farm loan waivers or other forms of subsidies would weigh further on government finances, he added.

Experts also feel that deviation from the targeted number for the second consecutive year in a row may not go down well with the rating agencies.

According to India Ratings and Research, the slippage in the Centre’s fiscal deficit in 2018-19 is likely to be Rs 39,900 crore.

“Fiscal deficit in FY19 is estimated to be Rs 6.67 trillion as against the budgeted Rs 6.24 trillion [FY18 (revised estimate): Rs 5.92 trillion]. This translates into fiscal deficit/ GDP of 3.5 per cent for FY19 compared to the budgeted estimate of 3.3 per cent. This means that FY19 will be the third consecutive year in which fiscal deficit/ GDP will be 3.5 per cent,” it said.

Crisil Chief Economist, D. K. Joshi, also pointed out that there is pressure on the fiscal deficit, even though there is some relief on the crude oil front.

“If the revenue doesn’t match the expenditure, it would be a challenge to meet the fiscal deficit target,” Joshi said.

The slowdown in revenue collection, moderation in factory output and tight liquidity situation are putting pressure on the fiscal deficit, L&T Financial Services group chief economist, Rupa Rege Nitsure, said.

Industrial output growth dropped to a 17-month low of 0.5 per cent in November on account of a contraction in the manufacturing sector, particularly consumer and capital goods.

Multilateral funding agency, Asian Development Bank (ADB), reposed its faith in the government’s commitment to meet the fiscal deficit target for the current fiscal.

“I think a clear framework is there and the mandate given under the Fiscal Responsibility and Budget Management Act. We don’t have any doubt about it,” ADB Country Director Kenichi Yokoyama said.

The Centre has budgeted to contain the fiscal deficit at 3.3 per cent of GDP in the current fiscal, lower than 3.5 per cent in 2017-18.

Last month, Finance Minister Arun Jaitley had exuded confidence in meeting the fiscal deficit target of 3.3 per cent for the current fiscal.

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