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The change
With a bit of fine balancing and good math, the Centre has managed to retain its 3.3 per cent fiscal deficit number for FY20. While the bond market has cheered and the yield on the 10-year G-Sec has fallen by 10 basis points, there is more to the Centre’s magical fisc number, than meets the eye.
The background
In a bid to rein in fiscal deficit target to the much revered 3.4 per cent number in FY19, the Centre had to slash expenditure by ₹1.45 lakh crore (from the revised estimates), as shortfall in tax revenues of ₹1.67 lakh crore upset the applecart. With such steep shortfalls in tax revenues, the FY20 projections set out in the interim Budget, seemed ambitious no doubt. But the Centre has managed to retain its receipts estimate. But how?
Given the poor income tax collection in FY19, the Centre has lowered its estimate for FY20 by about ₹51,000 crore from the interim Budget. Weak GST collections also prompted the Centre to reduce the projected GST collection for FY20 by about ₹97,000 crore from its earlier estimate. But an increase of about ₹40,000 crore in excise, has offset these shortfalls and led to an overall reduction of ₹55,000 crore in tax revenues.
Interestingly, a higher ₹1.05 lakh crore of disinvestment proceeds (nearly ₹20,000 crore more than the Interim Budget), dividend from the RBI (about ₹23,000 crore more) and spectrum receipts (₹9,000 crore more) have balanced out the reduction in tax collections.
With the receipts nearly around the estimates laid down in the Interim Budget (actually ₹2,100 crore more), the Centre has not had to tinker with expenditure much.
The verdict
While the math may well tally, digging into estimates suggest that there could be slippages from the Centre’s projection for fiscal deficit.
Even after reducing income tax estimates for FY20, achieving it appears a daunting task. Based on CGA provisional figures for FY19 (in which income tax grew by just 7 per cent), the growth in income tax collections for FY20 works out to 23 per cent. Remember that income tax has grown by about 14 per cent annually over the past five years. Hence meeting FY20 target may be difficult — despite the surcharge assumed for super rich.
The Centre has lowered its target to ₹5.26 lakh crore (from ₹6.1 lakh crore) for the Central Goods and Services Tax (CGST) for FY20. But in the three months up to June, CGST collections have been around ₹1.2 lakh crore, below the ₹1.3-1.4 lakh crore that will be required to meet FY20 target.
The gross market borrowings remain at an alarming level of ₹7.1 lakh crore — though the Centre intends to raise a part of it in external markets, which can lower pressure on rates in domestic market. Also, the Centre has assumed a 12 per cent growth in nominal GDP growth for FY20, which appears a tall task.
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