Fiscal deficit set to surpass target

As the revenue receipts of the government fell way below its budget estimates due to the messy rollout of the unified indirect tax – goods and services tax (GST) – and its expenditure shot up, the fiscal deficit until October in the current fiscal widened to Rs 5.25 lakh crore compared to Rs 4.99 lakh crore in the same period last year.

This puts the seven months – April to October – fiscal deficit at 96.1% of the budget estimate (BE) against the 79.3% during the corresponding period last year.

The data released by the Controller General of Accounts (CGA) on Thursday showed that the revenue receipts were at Rs7.29 lakh crore for the April-October period, which was 48.1% of the BE of Rs 15.15 lakh crore for the full year. Last year, revenue receipt stood at 50.7% of the BE for the seven-month period.

In comparison, the total spending of the government climbed to Rs 12.92 lakh crore, which was up 60.2% of the BE compared to last fiscal's 58.2%. Here, it was revenue spending that moved up 61.5% of the Budget target against a 59.2% last fiscal while the capital expenditure was at 52.6% of the BE versus 50.7% a year before.

Rishi Shah, economist, Deloitte India, told DNA Money that the increased focus of the government on capital expenditure due to disruption in economic activities and slip in revenues on account of teething issues related to GST could have led to fiscal deficit widening in the first seven months of the current fiscal.

"There has been increased focus on government expenditure given the disruption, we had over the last few quarters and revenues have fallen short up till now, possibly due to sluggish economic activity and imposition of the new indirect tax," he said.

Shah, however, said it was too early to say whether the government may look at revising its fiscal deficit of 3.2% of the GDP for the current fiscal.

According to him, the government could look at cutback of expenditure if the deficit target proved daunting for it; "the government can always cut back on expenditure and meet the deficit target but it is slightly early at this moment. The next few months would be important to see what kind of expenditure and revenue pattern emerges".

He expects revenue to improve in coming months with streamlining of GST and pick up in GDP growth.

Aditi Nayar, principal economist, Icra, said "inching up" of fiscal deficit highlighted the lingering concerns related to the possibility of a fiscal slippage in the current year.

"The risk of a slippage relative to the fiscal deficit target for FY2018 stems primarily from the growing likelihood that tax and non-tax revenues would undershoot the budgeted level, whereas concerns regarding the magnitude of disinvestment inflows have ebbed," she said in a statement issued by the rating agency.

Nayar said that the uncertainty related to the eventual growth of GST collections continued while the double-digit expansion of corporation tax and personal income tax in October was encouraging.

She also expressed concerns over the decline in the surplus transferred by the Reserve Bank of India (RBI).

"Dividends and profits received up to October 2017 stood at a modest 30% of the BE, reflecting the impact of the decline in the surplus transferred by the RBI. Dividends from financial and non-financial public sector enterprises would need to rise appreciably to avoid a missing the target for FY2018. There remains a moderate risk of shortfall relative to the dividends and profits that the government had budgeted for FY2018," said the Icra economist.

Nayar did not expect much revenues from divestment of public sector undertakings (PSUs); "If the proposed acquisition of the GoI's stake of 51% in HPCL by ONGC gets completed in the current fiscal, total disinvestment proceeds would exceed the budgeted level. However, the timing of this transaction is uncertain," she wrote in the statement issued by Icra.

Going by the revenue-expenditure trend till now, Nayar said there was scope for revenue expenditure to expand by 7.4% on a year-on-year (YoY) basis in the November2017-March 2018 period.

"However, given the front-loading in the early part of the year, capital outlay would have to contract by 16.8% in the last five months of this fiscal, to avoid exceeding the budget estimate," she said.