Fiscal deficit crosses 77% of budgeted target in first four months of FY20

The Centre’s fiscal deficit touched 77.8 per cent of the Budget Estimates (BE) at Rs 5.5 trillion in the first four months of the financial year 2019-20 (FY20), against 86.5 per cent in the year-ago period. 

The deficit stood at 8.8 per cent of gross domestic product (GDP) in the first quarter of FY20 (Q1FY20), an improvement over the Q1FY19 figure of 9.5 per cent.

The government managed to keep the deficit, in terms of percentage of BE, at a lower level in April-July of FY20 compared to last year largely because of its expenditure compression, mainly capital expenditure (capex). Moderation in capex in terms of percentage of BE may have an impact on the economic growth numbers amid muted private investments.  

Also, despite talks of revenue problems, the government was able to keep its income at the same level as last year in terms of percentage of BE. In fact, the tax income was slightly higher than during April-July of FY19 in this regard, keeping the overall revenue receipts steady. 

At Rs 3.4 trillion, tax revenues of the Centre constituted 20.5 per cent of BE in the first four months of FY20 against 19.8 per cent in the last year’s corresponding period. 

It is yet to be seen how these tax numbers pan out in August as direct tax collections have dwindled so far in FY20.

Non-tax revenues fell to Rs 44,000 crore, which was 14 per cent of BE, compared to 17.6 per cent a year ago. However, the Rs 1.76 trillion to be transferred by the Reserve Bank of India (RBI) to the Centre would come handy to the government on this count now.

“Transfer from the RBI will help the government attain the fiscal deficit target of 3.3 per cent of GDP during FY20. However, increased expectations of lower GST collections amid slowdown in the economy could exert upward pressure on the fiscal deficit,” said Madan Sabnavis, the chief economist at CARE Ratings.

Non-debt capital receipts, at about Rs 14,000 crore, accounted for 14.2 per cent of BE against 14.7 per cent a year ago. Disinvestment receipts stood at about Rs 12,000 crore, representing 12 per cent of BE — the same as the first four months of the last year. 

The government kept its expenditure at about Rs 9.5 trillion, or 34 per cent of BE, in the first four months of FY20 against 36.4 per cent a year ago.

Within that, capex stood at just Rs 1.1 trillion, constituting 31.8 per cent of BE against 37.1 per cent a year ago. 

Similarly, revenue expenditure was kept at Rs 8.4 trillion, accounting for 34.3 per cent of BE against 36.3 per cent the previous year. This was despite higher fertiliser subsidies in these four months than a year ago. Revenue expenditure of the Department of Fertilizers constituted 41 per cent of BE in April-July period against 31 per cent a year ago.

After taking out capex, the Centre’s revenue expenditure stood at Rs 4.6 trillion, accounting for 94.1 per cent of BE. By this time last year, this part of the deficit has covered the entire BE as it stood at 106 per cent of the estimates.

Controlling revenue deficit is taken as a better way to check fiscal deficit than capex, which is required for economic growth.