Govt closes in on fiscal deficit target with expenditure cut

The central government is likely to almost meet the revised fiscal deficit target set at 3.4% of the gross domestic product (GDP) for the current financial year (FY2018-19).

The government officials, as well as experts, say the revenue receipts on account of Goods and Services Tax (GST) and direct tax may see some shortfall and the 3.4% figure is likely to achieved by compressing the expenditure. And any slippage would be marginal, more so in absolute terms, experts said.

The government had revised the fiscal deficit target for FY19 in the interim Budget to 3.4% from the earlier estimate of 3.3%. In absolute terms, the fiscal deficit, the gap between the Centre's expenditure and revenue, has been pegged at Rs 6.34 lakh crore for the current fiscal.

"There is likely to be a shortfall of about Rs 30,000-40,000 crore in indirect tax collections, mainly on account of GST, while direct tax collection may also fall short by around Rs 50,000 crore as it appears now," a source said. The government's mop-up target for direct tax collection during the current fiscal as per the revised estimate is pegged at Rs 12 lakh crore. On the other hand, the indirect tax collection target for the current fiscal was revised to Rs 11.47 lakh crore from Rs 13.71 lakh crore budgeted initially.

However, the government is quite positive about meeting the target set for fiscal deficit.

"Fiscal deficit target would be met as a shortfall in indirect tax collection would be compensated by lower government expenditure," said finance secretary Subhash Chandra Garg, who is also the secretary of Department of Economic Affairs.

"The government may compress its expenditure by around 2.5% or Rs 60,000 crore of the budgeted amount of Rs 24.57 lakh crore for the current year. This is mainly on account of savings from various departments, cut in capital expenditure and rollovers," a source said, adding that this is in line with the past trends.

Until January, the government's spending was 81.5% of the originally planned as compared to 83% during the same period last year. The government would not be able to spend the remaining entire amount of Rs 86,000 crore in the last two months of the current year, giving it some comfort, said sources.

"The government should be able to meet the fiscal deficit target. At the most, the fiscal target can shoot up by .1% in case there is a significant shortfall in revenue collection," said Madan Sabnavis, chief economist, CARE Ratings.

"There are accepted ways of achieving the fiscal deficit target. It can be done by rolling over certain expenditures on account of subsidies and by cutting some capital expenditures without having much impact on the ongoing projects such as roads. Similarly, the disinvestment target can be met by making one public sector unit (PSU) buy another one. All this is permitted and is normally done by all the governments," said Sabnavis.

Devendra Kumar Pant, chief economist at India Ratings, said, "The higher GDP numbers and some amount of expenditure cut and expenditure rollover will help the government reach closer to the fiscal deficit target at 3.4%. However, in absolute terms, it looks difficult to achieve." The government had done the Budget calculations on the basis of earlier GDP figures, Pant added.

D K Srivastava, chief policy advisor for EY, does not see any concern in meeting the revised fiscal deficit target. "If at all there is slippage, it will be marginal. The corporation tax collection will decide whether the government would be able to meet the direct tax target. However, the GST target, as well as disinvestment target of Rs 80,000 crore, is likely to be met."

Normally, we see a bump up in revenues during March. So far, the direct tax collections are in the range of Rs 9 lakh crore, whereas the indirect tax collection is over Rs 10 lakh crore, government sources said. On the disinvestment front, the government has so far garnered Rs 57,523 crore. It is likely to reach closer to the target by selling its stake in L&T and on completion of Power Finance Corporation (PFC)-Rural Electrification Corporation (REC) deal.

Meanwhile, some experts point out that the government has a cushion of .08% while still maintaining the fiscal deficit number at 3.4% even if it overshoots the current number of 3.36% to a maximum of 3.44% (to be rounded off to 3.4%).

The fiscal deficit for April-January 2018-19 had touched Rs 7.70 lakh crore or 121.5% of the revised full-year Budget target for the current fiscal, owing to lower revenue collections, as per the data released by the Controller General of Accounts.

"This is not unusual in March. The government shows fiscal deficit surplus in the month of March because direct tax collection shows a seasonal peak," said Srivastava.

BALANCING ACT

• Rs 30,000-40,000 cr – Shortfall likely in indirect tax collections, mainly on account of GST
   
• Around Rs 50,000 cr – Direct tax collection may also fall short by 
   
• Rs 57,523 cr – Garnered via disinvestment so far against the target of Rs 80,000 crore