Govt confident on fiscal deficit target

Deficit spike in first half but revenue expected to pick up in second half; no spending cuts envisaged, assure officials

The government officials and economists sound confident that the Narendra Modi government will be able to meet its challenging fiscal deficit target for the year. This is in spite of it having reached 83.9 per cent of the full-year target limit at the end of the first six months of the financial year. 

Such an end-September level is the highest in nearly two decades of a financial year, attributed to elevated capital spending and higher salary outgo. On the revenue side, lower realisations from disinvestment and other streams hurt the exchequer.

The gap between the Centre’s expenditure and revenue was significantly higher than the 68.1 per cent in the corresponding period of the previous financial year. This level for April-September had not been reached since 1998-99. Even so, government officials sound confident on the fiscal deficit target of no more than Rs 5.34 lakh crore or 3.5 per cent of gross domestic product for 2016-17.

Officials said revenues from divestment, the black money scheme and tax buoyancy due to enhanced economic activities on rural demand in the second half would help. Revenue receipts are usually back-ended every year, while expenditure is evenly spread. “However this year with better planning, expenditure outgo, especially on the Plan side, has been greater. Things will balance out in the second half,” Economic Affairs Secretary Shaktikanta Das told this newspaper. “There will be no conscious or planned spending cuts.”

Said another official: “We are confident on achieving the tax collection target. Corporate tax collections have been slow. It is dependent on performance of the economy as well. We expect an improvement in the second half.”

The income-tax department is expecting additional Rs 9,000-10,000 crore revenue on account of higher tax collected from government employees with the rise in salaries due to implementation of the Pay Commission.

Direct tax collections were up 8.9 per cent in the first half, at Rs 3.27 lakh crore. About 38.6 per cent of the Budget Estimate on direct taxes for 2016-17 had been achieved by end-September. 

Besides, the Rs 30,000 crore in tax and penalties from the Income Declaration Scheme was not accounted for in the Budget calculations. Half of that, about Rs 15,000 crore, will come to the government’s books in the current financial year itself, the second official said.

“The only tiny gap one sees is in (telecom) spectrum sales. Even that can be balanced out with disciplined spending,” said Shubhada Rao, chief economist with YES Bank. She said the disinvestment targets were achievable, with the proceeds in the first half and also as putting the 700 and 900 megahertz telecom bands back on the auction block was still an option.

The target from spectrum auction was Rs 64,000 crore. However based on the auctions held so far, the Centre will get half of this.

Direct tax collection growth was rather tepid in the first half but officials are confident that as taxes are back-loaded, both indirect and direct tax numbers will show improvement. 

The two revenue items on which the Centre’s plans for the year hinge are dividends from state-owned companies and banks, and disinvestment. It managed Rs 21,000 crore through stake sales and buybacks in April-September, the highest-ever first half divestment revenue for a year by a good margin. Of this, Rs 16,500 crore is from buybacks initiated by five public sector units. The rest has come from five stake sales through the offer-for-sale route.