Govt may miss fiscal target again, gap seen at 4.1%: Ind-Ra

The lower GDP growth is likely to result in the government breaching the FY16 fiscal deficit target of 3.9 per cent by 0.20 per cent, domestic rating agency India Ratings said today.
"The main reason for the higher-than-budgeted fiscal deficit is the likely lower nominal GDP growth in FY16 than the 11.5 per cent assumed in the Budget estimate," the agency said in a note.
The final fiscal deficit number for the ongoing fiscal is likely to come in at 4.1 per cent of GDP as against the government's own relaxed target of 3.9 per cent, it added.
On an absolute basis, the fiscal gap is likely to be at the budgeted levels of Rs 5.56 trillion but the lower than expected nominal GDP growth will widen the deficit in percentage terms, it said.

During the first eight months of the fiscal till November, the government has already exhausted 87 per cent or Rs 4.83 trillion of the Budget estimate.
The note comes at a time when there is intense speculation over the strategy to be adopted by the government in the upcoming Budget.

A wider fiscal deficit is inflationary and the number is also tracked by credit rating agencies for their view on the sovereign.
In the recent past, foreign rating agencies have threatened to downgrade the sovereign rating to the junk status, which is already just a notch above investment grade at BBB- with a stable outlook, with the higher fiscal deficit number being one of the major concerns.

The India Ratings report further noted that the government
is likely to breach the FY17 budget target as well, which will result in the medium term fiscal consolidation target -- under which the government has committed to bring the gap down to 3 per cent by FY18 -- by a year to FY19.
Last year also, it was pushed back by a year.
The lower-than-expected inflation will result in nominal GDP growth in FY16 coming at 9.6 per cent, less than the budget estimate, which will result in the fiscal arithmetic being missed.
The tax revenues for the April-November period stood at Rs 9.19 trillion, which is 50 per cent of the overall target, it said.

If the government wants to achieve the targeted 3.9 per cent number, it needs to save Rs 21,100 crore which can be done by deferring a part of subsidy payments to next fiscal and cutting down capital expenditure, which can be counterproductive in times like these when the public investment needs to go up, it said.
On the brighter side, it said factors like higher Excise collection, higher dividends by RBI and lower oil subsidy are going to help government finances this fiscal, but lower divestments and higher food and fertiliser subsidies will offset these gains.
"Stepping up government capex is indeed going to be challenging. Yet, we believe the government will have to catch the bull by the horns and find ways to step up public investment," it recommended.