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The Centre’s fiscal deficit has exceeded the Budget Estimate in the first seven months (April-October), signalling continued strain on the economy.
Fiscal deficit is the difference between income and the expenditure.
According to data released by the Controller General of Accounts (CGA), fiscal deficit for the April-October period touched ₹7.20 lakh crore.
This is 102.4 per cent of the Budget Estimate of ₹7.03 lakh crore. The only solace is that this year’s deficit during the first seven months is lower than corresponding period of the last fiscal. Deficit for April-October period of 2018-19 was 103.9 per cent of the Budget Estimate.
Higher deficit means, the Finance Ministry will have very little headroom to go for any new tax cut, especially personal income tax. It cannot resort for any fresh spending to boost growth. Rather, it can go for some cut. Finance Minister Nirmala Sitharaman has already made it clear that there will be no cut in the spending on the welfare schemes. It means expenditure, such as subsidy, could be rolled over.
The CGA has also given a disclaimer stating that fiscal deficit figure shown in the monthly accounts during a financial year is not necessarily an indicator of fiscal deficit for the year as it gets impacted by temporal mismatch between flow of non-debt receipts and expenditure up to that month on account of various transitional factors both on the receipt and expenditure side, which may get substantially offset by the end of the financial year.
Tax mop-up
Data shows total revenue collection is nearly 45 per cent of the Budget Estimate. Gross collection from all the taxes (direct and indirect) during the April-October period was ₹10.51 lakh crore as against the target of ₹24.61 lakh crore. This means for the remaining five months should see an average collection of ₹2.82 lakh crore, against an average collection of ₹1.50 lakh crore, which appears to be a daunting task.
On the expenditure front, the Centre spent over ₹16.55 lakh crore against the Budget Estimate of ₹27.86 lakh crore. This means nearly 60 per cent has been spent.
Out of total expenditure, ₹14.54 lakh crore was on Revenue Account and ₹2.01 lakh crore on Capital Account. Out of the total Revenue Expenditure, interest payment accounts for nearly ₹2.90 lakh crore and nearly ₹2.27 lakh crore was on account of major subsidies.
The Government has repeatedly maintained that it will try to keep the deficit to Budget Estimate of 3.3 per cent (of GDP). However, many analysts believe that the deficit will go up to 3.5-3.7 per cent.
Economic growth
Devendra Kumar Pant, Chief Economist with India Ratings, said that economic growth in FY20 is likely to be 5.6 per cent and this does not instill confidence in achieving 3.3 per cent fiscal deficit target unless there is steep expenditure reduction, which in the present scenario looks unlikely. “The only hope rests with disinvestment (government has over achieved disinvestment targets in last few years) and the expenditure roll over. Expenditure roll over will also have an impact on economic growth. Ind-Ra forecasts fiscal deficit at 3.6 per cent of GDP in FY20,” he said.
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