The government has breached its fiscal deficit target given in the Budget for 2017-18 in November itself. During the April-November period, the fiscal deficit was 112% of its Rs 5.5 lakh crore target for current fiscal year 2017-18. This is the highest deviation from the Budget Estimates for the fiscal deficit in the first eight months of a financial year since 2008-09, the year of the global financial crisis.
This means that the government needs to have a fiscal surplus in the next four months combined if it has to meet its target, which observers said, is a difficult ask. The government’s decision to go in for Rs 50,000 crore additional borrowing this year will add to the problem, they said.
During the April-November period, the revenue deficit also stood at 152% of the Rs 3.2 lakh crore full-year target, compared with 98% during the same period last year. This means that the quality of the fiscal deficit is also very poor since much of the money is not going into asset creation.
In 2008-09, the fiscal deficit
in April-November was 132.4% of the full year’s target. That year, the deficit was targeted to be 2.5% of GDP, but crossed 6%. The situation this year is not likely to turn out to be that grim.
Since then, the deficit has not crossed 100% during the eight-month period until this year.
The official data released on Friday showed that the fiscal deficit, the difference between government expenditure and revenue, for April-November 2017 was Rs 6.12 lakh crore, against a budget estimate of Rs 5.46 lakh crore. This was mainly due to lower goods and service tax collections, non-tax revenues such as spectrum and transfer of money by the RBI to the government and higher expenditure.
Over the same period last year, the fiscal deficit
was nearly 86% of the budget estimate.
“The disappointing GST collections for November 2017 and the recent increase in the Centre’s issuance calendar signal a fiscal slippage in 2017-18,” said Aditi Nayar, principal economist with ICRA.
Earlier this week, the Centre announced that it would borrow Rs 50,000 crore from the market over and above the budget estimate of Rs 5.80 lakh crore for 2017-18, indicating a fiscal slippage this year. At the same time, the Centre reduced its borrowings through short-term treasury bills by Rs 61,203 crore. This has made the task of calculating the fiscal deficit difficult.
The additional market borrowing could take the fiscal deficit to 3.54% of the GDP this year, the same as in 2016-17, against the target of reining it in at 3.2%. If short-term treasury bills are extended beyond a year, it could further widen the deficit.
GST collections in November fell to just above Rs 80,000 crore, lower than Rs 83,346 crore in October and far below the target Rs 91,000 crore a month.
Nayar said the magnitude of the fiscal slippage in 2017-18 would be governed by factors such as whether GST collections improved in January-March. She said for the deficit target to be met, capital outlay and net lending would have to contract by 15.4% in the last four months of this fiscal year, which would have negative implications for investment as well as overall economic activity.
“Moreover, revenue expenditure will have to stagnate in December-March to avoid exceeding the budget estimate. The pace of growth of direct tax collections would need to improve to 21% in the remaining four months of this fiscal year from 14% in April-November, which appears unlikely,” she said.
Friday’s data showed that the government’s revenue receipts were Rs 8.04 lakh crore in the eight months to November, or 53.1% of the budget estimate of Rs 15.15 lakh crore. Total expenditure was Rs 14.78 lakh crore at the end of November, or 68.9% of the budget estimate. It was 65% of the budget estimate a year ago.
Combined tax revenues reached their peak this year in September at Rs 2.50 lakh crore. The monthly tax mop-up is declining since, with Rs 1.40 lakh crore in October and Rs 1.14 lakh crore in November.
Capital expenditure during April-November was 59.5% of the budget estimate compared to 57.7% in the same period of the previous fiscal year. Capital spending increased in November to Rs 21,320 crore from Rs 16,406 crore in October. It was Rs 36,741 crore in September, the highest in this fiscal year.
Revenue expenditure, including interest payments, was 70.5% of the budget estimate during April-November. This compares with 66.1% a year earlier.
The Centre is staring at a tax revenue shortfall of Rs 40,000-50,000 crore. A Rs 25,000-30,000 crore shortfall is expected in indirect tax revenue due to the GST, while receipts from non-tax revenues, including spectrum fees, transfer by the RBI and dividends from public sector enterprises and state-owned banks, and direct taxes could lead to a gap of Rs 20,000 crore between actual receipts and what was projected, even if expected higher proceeds from disinvestment are taken into account.