With its other macro indicators in not-so-great shape, it is worrying that India’s fiscal deficit numbers should now threaten to overshoot targets for this fiscal. Latest data on the Centre’s finances show that the fiscal deficit, at ₹5.94 lakh crore for April-September 2018, was already at 95.3 per cent of the budgeted figure for FY19. Receipts in the first half of the fiscal were at just 39 per cent of the annual target while expenditure had already exceeded the halfway mark at 53.4 per cent. A fiscal deficit overshoot poses upside risks to inflation, one of the few macro indicators that remain favourable. Taken with a burgeoning current account deficit, it would materially diminish India’s attractiveness to foreign investors and rating agencies, at a time when their patronage is sorely needed. Slippage in the fiscal deficit would not be a big worry, if the Centre were using this leeway to spend its way to growth. But with ₹11.4 lakh crore of ₹13 lakh crore in the first half splurged on revenue items (typically salaries, overheads and interest), it is well-known much of this spending is unproductive.
It is quite the norm for Indian governments to front-load their spending to the first half of the fiscal while chasing down revenues in the second half. But this modus operandi may not work this year. While direct tax collections may sustain their healthy growth rates of 17 per cent on the back of a wider tax base, there are no such triggers to flatlining indirect tax revenues. Monthly collections from GST have remained stubbornly below their ₹1-lakh crore target. While the Centre is pinning its hopes on a windfall from festival sales, progressive reductions in GST tariffs are an offsetting factor. Recent cuts in excise duty on fuel are bound to trim contributions from this source too. Last year, a buoyant market allowed a last-minute scramble on disinvestment to shore up capital receipts. But hostile markets can scuttle such plans this year, with disinvestment offers so far raising just one-eighth of the Budget target of ₹80,000 crore.
All this calls for proactive measures to improve the GST mop-up. While the tax department seems to be pulling out all stops on plugging tax evasion, improving the taxpayer experience may prove more effective at raising compliance. Resolving the persisting glitches with the GST network, cutting the inordinate delays on refunds and input tax credits and avoiding frequent flop-flops on rates and deadlines are imperative on this score. The government also seems to be tempted to manage the deficit number through creative accounting — stake sales between PSUs, stock buybacks and of late, using the National Small Savings Fund to extend extra-budgetary lifelines to entities such as Air India and Food Corporation of India. But such moves will only serve to decimate the hard-won credibility of India’s Budget exercise, while fooling neither investors nor global rating agencies.
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