Fiscal deficit: Even the revised target seems out of reach for Modi govt

The Centre has overshot even the revised estimates (REs) of the fiscal deficit by 13.7 per cent for 2017-18 by January itself.

This means the government will have to cut expenditure to rein in the fiscal deficit at 3.5 per cent of gross domestic product (GDP), and that was anyway higher than the 3.2 per cent in the Budget Estimates (BEs).

The government had revised its fiscal deficit to Rs 5,948.49 billion from the BE of Rs 5,465.31 billion. 

Meeting even that target seems difficult now unless the government applies brakes on expenditure, particularly capital expenditure.

If the government does so, economic growth may become a casualty in the fourth quarter.

Looking at the broad figures, the government’s receipts are not much off the mark, despite GST (goods and services tax) collections dipping marginally in January. The receipts were 71.7 per cent of the REs during April-January 2017-18 against 71.1 per cent during the same period of 2016-17.

Within receipts, it was non-debt capital receipts, which include disinvestment, and non-tax revenues, which include spectrum fees and the RBI transfer of funds to the government, that have fallen behind the pace of 2016-17 till January.

Though the RBI’s subdued transfers to the government were factored in in the revised estimates, non-tax revenues were still 52.7 per cent of the REs against 57.7 per cent a year ago.

Non-debt capital receipts were at 57.6 per cent of the REs during April-January, 2017-18, against 77.9 per cent in the corresponding period of the previous year because the big-ticket HPCL-ONGC transaction of Rs 369 billion (in 2017-18) was not accounted for.

As far as tax revenues are concerned, Rs 9,713.23 billion bettered the previous year’s figure till January in terms of proportion of the REs. The figure was 76.5 per cent of the REs against 75 per cent a year ago.

This was despite the overall GST mop-up dipping to Rs 863 billion in January, slightly lower than the Rs 867 billion in December. It is less than the monthly target of Rs 910 billion for the Centre and the states together. The numbers released by the Ministry of Finance were lower than Rs 900 billion for the fourth straight month. The tax yielded Rs 808.08 billion in November and Rs 833 billion in October.

“Although the government’s revenue receipts tend to rise significantly in the last quarter of the fiscal year due to the normal back-ended pattern of tax inflows, and disinvestment flows will also increase in the fourth quarter owing to the HPCL-ONGC transaction, there is a risk that the target for dividends and profits may not be achieved,” said Aditi Nayar, principal economist, ICRA.

The government has to compress capital expenditure because it has reached 96.9 per cent of the REs against 72.9 per cent a year ago.

However, the government has more wiggle-room on the revenue expenditure side because it was 81 per cent of the REs till January against 81.5 per cent a year ago.

Nayar estimated that capital expenditure and net lending would need to contract by 89 per cent during February-March on a year-on-year basis to remain within the REs. “In the event that some short-term loans such as working capital loans are repaid in the last two months of 2017-18, some headroom may emerge for additional capital spending,” she said.