The bond markets have rejoiced. The yield on the 10-year G-Sec has fallen by 10 basis points, cheering the 3.3% fiscal deficit number retained for FY20, by Finance Minister Nirmala Sitharaman. But how has the Centre achieved this feat, given that the provisional actual figures for FY19, released by the Controller-General of Accounts, suggested a massive shortfall of Rs 1.67 lakh crore in tax revenues, in the last fiscal?

Well, with a fine act of balancing and math, the Centre has managed to retain both its revenue and expenditure figure for FY20 (give or take a few thousand crores), as put out in the interim Budget. Given the poor income tax collection in FY19, the Centre has lowered its estimate for FY20 by about Rs 51,000 crore from its interim Budget. Weak GST collections have also prompted the Centre to reduce projected GST collection for FY20 by about Rs 97,000 crore from its earlier estimate. But an increase of about Rs 40,000 crore in excise has offset these shortfalls and led to an overall reduction of Rs 55,000 crore in tax revenues estimates for FY20.

But interestingly, a higher Rs 1.05 lakh crore of disinvestments proceeds (nearly Rs 20,000 crore more than interim Budget), dividend from the RBI (about Rs 23,000 crore more) and spectrum receipts (Rs 9,000 crore more) -- have balanced out the reduction in tax collections.

With the receipts near around the estimates laid down in the interim Budget (actually Rs 2,100 crore more), the Centre has not had to tinker with expenditure much.

Hence, the magic 3.3 per cent figure has been retained.

Devil in the detail

But 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 a modest 7 per cent), the growth in income tax collections for FY20 works out to 23 per cent. Here it is important to remember that income tax has grown by about 14 per cent annually over the past five years. Hence, meeting the target set out for FY20 may be difficult, despite the surcharge assumed for the super rich.

The Centre has lowered its target for Central Goods and Services Tax (CGST) for FY20 to Rs 5.26 lakh crore (from Rs 6.1 lakh crore). But GST collections have been on the back foot. In the three months up to June, CGST collections have been around Rs 1.2 lakh crore, below the Rs 1.3-1.4 lakh crore that will be required to meet the revised full-year target.

On the non-tax revenue front, dividends from public sector enterprises, the RBI, PSU banks and financial institutions constitute a major portion. The sharp increase in surplus from the RBI can boost non-tax revenues. On the disinvestment front, the Centre managed to rake in Rs 85,000 crore (from budgeted Rs 80,000 crore) for FY19. For the current fiscal, it has set a higher disinvestment target. This may be achievable. But given that the Centre has been missing its target on spectrum, it is unlikely to meet its estimate.

Higher nominal growth

The gross market borrowings remain at an alarmingly high level of Rs 7.1 lakh crore. Also, the Centre has managed to retain a comforting 3.3 per cent on fiscal deficit, by assuming a 12 per cent growth in nominal GDP growth for FY20 (higher from the 11.5 per cent assumed in the interim Budget). Given the sharp slowdown in growth in recent quarters and the underlying trend in inflation, such growth appears a tall task.

What is additionally worrisome is the increasing reliance of the Centre on off-balance sheet borrowing -- Internal and Extra Budgetary Resources (IEBR) in recent years to fund its capital expenditure. The IEBR constitutes funds raised by central public sector enterprises by way of profits, loans and equity. The IEBR is kept out of the fiscal deficit calculation. In FY20, while gross budgetary support for capital expenditure is Rs 3.38 lakh crore, the IEBR is a higher Rs 4.4 lakh crore.

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