Lower expenditure set to prune FY18 fiscal deficit to 3.4% of GDP

The Modi government may be able to keep the fiscal deficit for fiscal 2017-18 below the revised budget estimate, by up to 10 basis points.

Flash government account numbers for fiscal 2017-18 are lower than the revised estimate numbers for both expenditure and revenue, but the reduction is accounted for more by a squeeze in expenditure.

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Flash numbers show total expenditure at ₹21.32 lakh crore and revenue at ₹15.59 lakh crore. This means the fiscal deficit is around ₹5.73 lakh crore, or about 3.4 per cent of GDP,” a senior government official told Businessline on condition of anonymity. He also clarified that the final figure may be slightly different from these as “some reconciliations are still going on”.

The government had initially set the fiscal deficit target at 3.2 per cent of GDP (Gross Domestic Product) for the financial year 2017-18. However, this was was raised to 3.5 per cent of GDP after it was clear that revenue from GST would come in for only nine months of FY 2018 (July 2017-March 2018). Now, the final picture will emerge when the Controller General of Accounts (CGA) posts the account for the entire fiscal (2017-18) by this month-end.

Tax collection

The official mentioned that the gross tax collection was around ₹12.51 lakh crore. This is higher than the budget estimate of ₹12.27 lakh crore but lower than the revised estimate of ₹12.69 lakh crore. However, the real problem was on the non- tax revenue front (which includes government fees and charges beside others), where the total collection was just ₹1.92 lakh crore, against the budget estimate of ₹2.88 lakh crore and the revised estimate of ₹2.36 lakh crore. Better performance on the disinvestment front helped the government mobilise ₹1.15 lakh crore through non-debt capital receipts, which is higher than the budget estimate of ₹0.84 lakh crore and close to the revised estimate of ₹1.17 lakh crore.

As for expenditure, the official said that many departments were asked to stick to the budget estimate last fiscal as “the revenue position was tight.” This was one of the reasons for the expenditure being lower than the revised estimate.

Commenting on the flash figures, Devendra Pant, Chief Economist and Head of Public Finance with India Ratings, said these numbers suggest that the fiscal slippage from budgeted numbers mainly originated from a shortfall in budgeted revenue. Without an expenditure cut, the fiscal deficit have been much larger.

Now, the question is what will happen to the fiscal deficit target during FY19? The government has set of a target of 3.3 per cent (₹6.24 lakh crore) for this fiscal.

Pant believes that higher crude prices, the MSP increase and the expenditure for Ayushman Bharat will impact the fiscal deficit. However, “the e-way bill is likely to improve GST collection. Industrial production is likely to be better than in FY18; along with expectation of a normal monsoon, this will likely lead to favourable revenue collections,” he said.