Rediff.com  » Business » Govt set to breach fiscal deficit target

Govt set to breach fiscal deficit target

By Arup Roychoudhury
January 08, 2020 19:00 IST
Get Rediff News in your Inbox:

If the fiscal deficit for the year can be maintained at Rs 7.04 trillion, the deficit as a percentage of GDP will slip to 3.44 per cent.

Fiscal

Illustration: Uttam Ghosh/Rediff.com

The first gross domestic product advance estimates for 2019-20, released on Tuesday, showed that nominal GDP is expected to grow 7.5 per cent this fiscal year to Rs 204.42 trillion, compared to 12 per cent to Rs 211-trillion forecast in the last Budget.

This implies that theoretically, if the fiscal deficit for the year can be maintained at Rs 7.04 trillion, the deficit as a percentage of GDP will slip to 3.44 per cent, compared to the budgeted target of 3.3 per cent.

 

However, with gross tax revenue shortfall expected to be much higher than Rs 2 trillion, and now doubts being cast on the Centre meeting its Rs 1-trillion divestment target, the actual fiscal slippage could be much higher, even as the finance ministry has mandated the central departments to rationalise expenditure by around Rs 2 trillion.

“Nominal GDP growth estimated at 7.5 per cent for FY20 will have significant implication for the economy.

"Most important of this relate to fiscal deficit.

"A lower denominator will magnify the fiscal deficit as a percentage of GDP.

"If nominal GDP declines further leading to the borrowing cost turning out to be higher than nominal GDP, then it will pose debt servicing challenge,” said Sunil Kumar Sinha, principal economist at India Ratings.

After the fiscal discipline shown in the early part of the Modi government, 2019-20 will be the third consecutive year the government will be unable to meet its fiscal deficit target.

Some analysts expect the fiscal slippage to be even starker.

"CARE Ratings had estimated fiscal deficit to GDP in the range of 3.8-4 per cent for FY20 considering the prolonged slowdown and shortfalls in collections.

"Based on the advanced estimates of GDP, we expect the fiscal deficit to GDP ratio to be at 3.92- 4.13 per cent for FY20," said Madan Sabnavis, chief economist at Care Rating.

The data indicates that although some uptick in economic activity is expected in the October-March period, the slowdown has still continued.

This will impact direct tax and goods and service tax collections, with officials anticipated a massive shortfall.

It should be remembered that 42 per cent of the burden of the gross tax revenue shortfall will be borne by states.

The Department of Investment and Public Asset Management (Dipam) admits that privatisation of Air India, Bharat Petroleum, and Container Corp will not be completed this year, casting serious doubts on the centre's ability to meet its divestment targets.

The Department of Economic Affairs issued an order last month stating that departments should spend just 25 per cent of their yearly allocated amount in the Q4.

Get Rediff News in your Inbox:
Arup Roychoudhury in New Delhi
Source: source
SHARE THIS STORY