COMMENT: There are also concerns on whether the budgeted targets for dividends and profits and other services will be achieved
Fears of fiscal slippage in this fiscal (FY19) have intensified after the fiscal deficit in April-October period crossed the budget estimate (BE) for the full year, despite the relief offered by the correction in crude oil prices since mid-October 2018.
During April-October period, the government’s revenue receipts grew by 8.2%, outpaced by the 13.2% growth in revenue expenditure and 8.8% rise in capital spending, leading to a 23.5% year-on-year (YoY) rise in fiscal deficit.
The extent of a potential fiscal slippage in the current fiscal would be driven by the likelihood of inability to meet the targets for GST, excise duty, dividends and profits, and disinvestment collections, and the adequacy of outlays for various items, particularly subsidies.
The tax revenue growth has displayed mixed trends, with a healthy expansion in direct taxes juxtaposed by a contraction in indirect tax collections in the April-October period. CGST collections stood at a muted 43.5% of the current fiscal’s BE in April-October period. Accordingly, we are expecting a shortfall in indirect tax revenues in this fiscal relative to the budgeted level due to sluggish CGST, as well as the cuts in excise duty on fuels. Notwithstanding concerns related to the inflows from the long-term capital gains tax, we do not expect a meaningful shortfall in direct tax collections against the estimate.
While non-tax revenues expanded by 34.2%, concerns remain on whether the budgeted targets for dividends and profits and other communication services will be achieved. In particular, the amount of dividend from nationalised banks and financial institutions and non-financial PSUs would need to rise considerably to Rs 67,310 crore in this fiscal to meet the target, from an estimated Rs 50,710 crore in fiscal 2018, which may prove challenging, unless interim dividends are transferred by the RBI and various PSUs to the government in the remainder of this fiscal.
Moreover, we expect a shortfall of Rs 12,000-15,000 crore as against the estimate for other communication services.
Disinvestment proceeds from the sale of the government’s equity holdings stood at a limited Rs 10,000 crore. Subsequently, they have risen to Rs 35,000 crore as of December 12, 2018. Although potential buybacks by some PSUs and purchase of the government’s stake in certain entities by other PSUs may help shore up the disinvestment proceeds, concerns remain over the likelihood of achievement of the full year target of disinvestment of Rs 80,000 crore.
The writer is a principal economist at Icra
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