India's April-December fiscal deficit at 132% of budgetary target

According to the Controller General of Accounts (CGA) data, the Government of India's fiscal deficit recorded a sharp increase in April-December 2019 and touched a considerable 132.4% of the budget estimates, with a contraction in net tax revenue and disinvestment receipts, amidst a substantial 32% growth in expenditure in December 2019.

The government aims to restrict the gap at 3.3% of the GDP or Rs7.03 lakh cr in the year ending March 2020.

Aditi Nayar, Principal Economist, ICRA Ltd on Fiscal Deficit, “As expected, the cut in corporate tax rates has led to a sharp contraction in collections in December 2019. We now expect the GoI's gross tax collections to fall short of the budgeted level by Rs3.7-4.2 trillion.

If we assume no interim dividend payment by the RBI (beyond the transfers made in August 2019, which were appreciably higher than budgeted), only marginal receipt of AGR dues in FY2020, a net tax shortfall of around Rs1.9-2 trillion and a gap of Rs0.8 trillion in terms of disinvestment proceeds, the GoI’s receipts are estimated to be lower than the FY2020 Budget Estimates (BE) by around Rs2.2 trillion.

The media reports said that the GoI is considering undertaking an expenditure cut of Rs2 trillion in FY2020. There could be substantial unspent balances that would be surrendered in some schemes such as PM-KISAN. Nevertheless, spending may need to be consciously trimmed in some departments, and payments to contractors may get deferred. In contrast, there was a considerable amount of unpaid subsidy that was carried forward to FY2020 from FY2019, and we expect a spillover to FY2021 as well.

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