The Prime Minister Narendra Modi-led government’s repeated assertions that the fiscal deficit
target for the year will be met in spite of no compromise in capital expenditure hinged on one factor: The direct tax collections for the year will exceed the Budget Estimates.
Now, with even that factor under considerable doubt, meeting the already challenging target will be an uphill task, unless the government slashes expenditure and carries forward a substantial chunk of subsidy payments to the next fiscal year, analysts and experts say.
The fiscal deficit
target for 2018-19 is Rs 6.24 trillion, or 3.3 per cent of gross domestic product. By November-end, it already stood at Rs 7.17 trillion, breaching the Budget Estimates by almost 15 per cent. This means the government needs a fiscal surplus of Rs 93,000 crore in the next four months to meet the target.
Sources in the government had earlier said direct tax collections could exceed the budgeted target of Rs 11.5 trillion by at least Rs 30,000 crore. However, it is now known that the Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra has cautioned officials about the direct tax collection
growth rate, and said it can adversely affect the Budget Estimates.
In a letter, he has told tax commissioners to step up their efforts, and that net collections were growing at 13.6 per cent against the budgeted target of 14.7 per cent.
The CBDT data released on Monday showed the government collected income tax revenue amounting to Rs 7.43 trillion in April-December 2018-19, 13.6 per cent higher than that collected in the same period of the previous financial year.
In September, Finance Minister Arun Jaitley had said after a meeting with the prime minister that the government was confident it would surpass the direct tax collection
target and would meet or surpass the overall tax collection target. That scenario now seems highly unlikely.
“Given the current concern regarding direct taxes, the fiscal deficit
target continues to look challenging. The good thing is that markets have already factored in that the fiscal deficit target is under tremendous challenge. Given the constraints in an election year, sticking to the target is difficult,” said Soumya Kanti Ghosh, chief economic advisor of State Bank of India.
“The last quarter of a financial year is when tax proceeds peak, including advance tax receipts in March because of the financial year ending,” said Neeru Ahuja, partner, Deloitte India.
The tax authorities will try to collect all outstanding demands and try to maximise collections in this period Ahuja said, but added that it remains to be seen if the budgeted target will be exceeded. “The collections in the January-March quarter will be strong, but will it wipe out the shortfall in GST?”
Officials have admitted that there could be a combined shortfall of Rs 70,000 crore-1 trillion on goods and service tax, though the centre’s own GST shortfall will not be more than Rs 29,000-30,000 crore.
A senior analyst now estimates that if the government does not go for deep spending cuts, the fiscal deficit could be as high as 3.8 per cent of GDP. The person did not wish to be named as he works with the government on a number of initiatives.
“If the government does want to stick to the 3.3 per cent target, then the alternative is significant expenditure cuts and taking forward most of the subsidy burden to the next fiscal,” SBI’s Ghosh said, and added that it will have to seek additional dividend from public sector institutions. As reported, the finance ministry is seeking at least Rs 23,100 crore in interim dividend from the Reserve Bank of India.
On the expenditure side of things, the finance ministry is counting on carrying forward some pending subsidy payments to next fiscal, converting some expenditure allocations to ways and means advance, and hoping for some savings on administrative and revenue expenditure.
And, data available for April-October shows that the pace of revenue expenditure for most social sector ministries and some infrastructure ministries has indeed slowed down, when compared to the same period last year. Some of these ministries and departments are commerce, coal, consumer affairs, corporate affairs, defence pensions, North-East affairs, housing and urban affairs, school and higher education, small and medium enterprises, Ayush, women and child development, panchayati raj, youth and sports affairs and others.
Successive governments have resorted to time-tested methods of rolling over additional subsidy burden, taking back unspent amounts from ministries, converting certain expenditure entries to ways and means advance, and running down the cash reserves. As reported earlier, if these steps are not taken, the centre could see additional expenditures of at least Rs 45,000 this year, over and above the budgeted spending estimates of Rs 24.4 trillion.