Govt may meet fiscal deficit target

A major concern in meeting the FY19 fiscal deficit target of 3.3% of GDP is the likely underperformance of indirect tax revenues. According to Controller General of Accounts (CGA) data, for the period from April-November 2018 the realised indirect tax revenue relative to budget estimates was 55%. This could be decomposed into customs revenue where this ratio is 77.1% and domestic indirect taxes where this ratio is 52.5%. Clearly, in the case of domestic indirect taxes, which includes Goods and Services Tax (GST), a considerable distance is yet to be covered during the remaining four months from December 2018 to March 2019. The main revenue shortfall is likely to occur in the case of domestic indirect taxes, particularly GST. 

If we go by the experience of the previous four years, based on CGA data about 80% of the revenue raised in the first eight months of the fiscal is collected during December to March period in the case of domestic indirect taxes. Applying this ratio to the amount raised in the first eight months, an annual estimated amount of domestic indirect taxes can be estimated at Rs 9,50,534 crore. Comparing this with the corresponding budgeted amount for FY19 of Rs 10,03,500 crore, the estimated shortfall is likely to be Rs 52,966 crore. These figures pertain to Centre’s gross tax revenues. This shortfall will therefore be shared between the central and the state governments. Centre’s share would be roughly 58%, which would amount to about Rs 30,000 crore.

In this fiscal, the government has access to 50% of the undistributed portions of the GST compensation fund and the Integrated GST (IGST) revenues. Although, these are temporary balances available to the Centre only until final settlements are made, at least temporarily these can enable the government to meet the shortfall in the indirect tax revenues without taking recourse to additional borrowing. We expect that in the case of direct taxes the central government would be able to meet its budgeted target. Also, there continues to be a possibility of obtaining some additional revenues in the form of special dividends from the RBI. It may therefore be possible for the central government to meet the budgeted fiscal deficit target without taking recourse to any substantive cuts. 

The writer is chief policy advisor at EY India