Reaffirming a strained fiscal situation, the Centre’s fiscal deficit in April-September 2020 soared further to ₹9.1-lakh crore, which was 115 per cent of the full year budget estimate. The fiscal deficit slippage is more on account of fall in tax revenue than any revenue expense increase, say economy watchers.
At the same stage last year, fiscal deficit as a proportion of budget estimate was 93 per cent.
The main reason behind the sharp fiscal slippage in the first half of this fiscal was the 32.5 per cent contraction in revenue receipts, largely due to the absence of economic activity during the lockdown period. There was a sharp fall in tax receipts by ₹2-lakh crore to touch ₹7.2-lakh crore (₹9.19-lakh crore in April-September 2019).
Further, the non-tax revenue receipts too have been short by over ₹1-lakh crore; ₹0.92-lakh crore in April-September 2020 as against ₹2.09-lakh crore in the first half of last fiscal.
Discouraging signs
There was a discouraging 12 per cent de-growth in capital spending and a lacklustre 1 per cent growth in revenue expenditure in April-September 2020, official data released on Thursday showed.
The revenue expenditure has been on target at ₹13.13-lakh crore as the relief expenses announced during the covid period have been implemented. However, there has been a cut in capex, which was lower at ₹1.65-lakh crore (₹1.87-lakh crore ).
In an encouraging trend, the de-growth in corporation tax eased, and income tax posted a small growth in September 2020, mirroring the recovery displayed by a number of non-agricultural lead indicators in September 2020.
Aditi Nayar, Principal Economist, ICRA said the monthly expenditure trends revealed a discordant sharp contraction in revenue and capital expenditure in September 2020, suggesting that the expenditure management restrictions are outweighing the fiscal support measures that have been announced so far.
“We remain circumspect regarding the extent of fiscal support that should be factored into the forecasts of an economic recovery in H2 FY2021. Despite all the liquidity measures announced by the RBI, G-sec yields may harden somewhat in the immediate term,” she said.
Madan Sabnavis, Chief Economist, CARE Ratings, said that the revenue to states has also been lower at ₹2.6-lakh crore against ₹3.11-lakh crore in the first half of last fiscal. However, excise collections have been buoyant mainly due to the higher taxes imposed on fuel and alcohol, which are not under GST.
“While the fiscal deficit will slip sharply this year to around 9 per cent of GDP, a lot depends on revenue collections picking up in second half. The reports of consumerism picking up does hold the clue. However this needs to be sustained. The other challenges are in the area of disinvestment where there has not been much movement. The government does have some aggressive plans here which need to materialise in the next 5 months or so”, Sabnavis said.