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The central government is set to borrow Rs 50,000 crore extra through long-term securities from the markets, over and above the budget estimate of Rs 5.80 lakh crore for fiscal year 2017-18. This means it will now breach its fiscal deficit target for the year of 3.2 per cent of gross domestic product. All other things being equal, fiscal deficit for the year could be 3.5 per cent of GDP.
A top government official confirmed that the Centre was set to borrow more, in the light of lower than expected revenue proceeds from the goods and service tax (GST) and non-tax revenue items like dividends from state-owned companies. An official statement from the finance ministry later confirmed that Rs 50,000 crore worth of additional government securities (G-Secs) would be issued in the January-March quarter.
Additionally, the issuance of short-term borrowings (Treasury Bills) would be reduced by about Rs 61,000 crore.
Any slippage this year means that the expected target for the next year, of 3 per cent of GDP, will not be adhered to, either. Finance Minister Arun Jaitley could use that extra spending room in what will be the Narendra Modi government’s last full Budget before the 2019 general elections.
Economic Affairs Secretary Subhash Garg had said in September that the Centre would re-assess its borrowing and fiscal targets in December. As of end-October, fiscal deficit was already at 96.1 per cent of the full-year target. For April-September fiscal deficit was at 6.3 per cent of GDP. The finance ministry has reined in spending over the past few months and will continue to do so after massive front-loading in the first half of the year due to advancing of the Budget.
On the revenue side, there are several concerns. There could be a tax revenue shortfall of Rs 20,000 crore due to a revision in GST rates, Bihar Deputy Chief Minister Sushil Modi said in the last GST Council meeting in Guwahati. However, central government officials maintain that was Sushil Modi’s views and any shortfall could be offset by greater compliance and an increase in demand. They say a clarity on the matter would emerge later.
Also, on the direct taxes front, as reported by Business Standard, the Central Board of Direct Taxes (CBDT) has pitched for lowering of direct tax targets by Rs 20,000 crore from the budget estimates due to a slowdown in economic growth.
Also, the Reserve Bank of India (RBI) has this year paid the Centre a surplus of Rs 30,600 crore. The Centre said it was expecting around Rs 43,000 crore. There is no certainty that the RBI would pay an extra amount or not. There is also a concern that state-run companies, having been told to spend more in capital expenditure, as well as buy back shares, might not be able to cough up the dividend expected of them.
The only silver lining, meanwhile, seems to be disinvestment, which could garner proceeds of above Rs 90,000 crore, compared with the budget estimate of Rs 72,500 crore.