India’s fiscal deficit: So far, so good

• HDFC
• 09 Aug 2018
• Knowledge Centre

HDFC, Tester

Data released by the Controller General of Accounts disclosed that India’s fiscal deficit, or the gap between the Government's revenue and expenditure, came in at Rs 4.29 lakh crore at the end of Jun-19. At 68.7% of the targeted Rs 6.24 lakh crore for FY19, this parameter is slowly moving towards the Government's budgetary estimate for the current fiscal.

 

The gap between the estimate and the actual figure was lower than it was in the same period of the previous fiscal when it stood at 80.8% of the FY18 target. This was largely owing to the fact that the Government had incurred expenditure to deploy the funds needed to stimulate investment and spur economic growth. Last year, the fiscal deficit target had to be revised upwards owing to a revenue shortfall following the implementation of the Goods and Services Tax Act.

 

Looking at the trials

 

However, challenges are foreseen in this fiscal too. These include the probability of the realization of the budgeted targets for GST revenue and disinvestment. Other factors include the quantum of expenditure incurred by the Government owing to the revision of the minimum support price or MSP, bank recapitalization and the National Health Protection Scheme.

 

A BloombergQuint report quoted Aditi Nayar, Principal Economist at ICRA supporting this theory. “Notwithstanding the mild improvement in the fiscal deficit in Q1 FY19 year-on-year, various fiscal concerns persist, including whether the budgeted targets for GST revenues, dividends and profits and disinvestment would be realized, and whether the outlays required for revised minimum support price, National Health Protection Scheme, fuel and other subsidies, and bank recapitalization would prove to be adequate,” she says.

 

Some Numbers

 

As per data released by the Controller General of Accounts (CGA), tax collection at the end of Jun-19 was Rs 2.37 lakh crore or 16% of the Budget Estimate (BE). CGA data revealed that total receipts of the Government stood at Rs 2.78 lakh crore during the Jun-18 quarter or 15.3% of the BE. In the same period of the previous fiscal, the collection was 13.1% of the BE. Total expenditure during the first three months of the current fiscal was Rs 7.07 lakh crore or 29% of the BE. Expenditure was slightly higher in the previous fiscal. Capital expenditure in Q1FY19 stood at Rs 86,988 crore or 29% of the BE.

 

The Government has budgeted a 16.7% rise in its gross tax revenue in the current fiscal. Details of this are:

 

1. Gross tax revenue will rise to Rs 22.7 lakh crore, 
2. Gross tax revenue is expected to be 12.1% of the country’s GDP, 
3. Net tax revenue for the Centre is estimated at Rs 14.8 lakh crore, 
4. Total expenditure for FY19 will be Rs 24.4 lakh crore, including expenditure incurred owing to GST compensation to states, and
5. Capital expenditure is expected to rise to Rs 3 lakh crore in FY19.

 

The Government had budgeted to cut India’s fiscal deficit to 3.3% of the GDP in the current fiscal, from 3.53% in FY18. Even then, it overshot the originally-budgeted target of 3.2% of GDP.

 

“GST collections are so far falling short of estimates, MSP outflow could be higher than initial estimates, and divestment revenues may depend on market conditions in H2 FY19. It will be interesting to check whether the Government will do a repeat in FY19, or be able to adhere to its budgeted fiscal deficit estimates,” concludes Mr. Deepak Jasani, Head Retail Research of HDFC securities Ltd.