The Centre’s fiscal deficit for the first quarter of the 2019-20 fiscal year was Rs 4.32 trillion, or 61.4 per cent of the full-year budgeted estimate of Rs 7.04 trillion. This is significantly less than the same period last year, when the fiscal deficit as a percentage of full-year target was 68.7 per cent.
The lower fiscal deficit for the April-June quarter was achieved due to a slowdown in capital expenditure owing to the Lok Sabha elections, as well as the Narendra Modi government seemingly reversing the usual trend of front loading expenditure, as it looks to meet an increasingly challenging full-year target of 3.3 per cent of the gross domestic product.
Data by the Controller General of Accounts showed that total expenditure for April-June was Rs 7.22 trillion, or 25.9 per cent of the total Budget size of Rs 27.84 trillion, compared with 29 per cent for the same period last year. Revenue expenditure was 26.9 per cent compared with 29 per cent, while capital expenditure was 18.8 per cent, compared with 29 per cent.
A breakdown of ministry-wise expenditure on the CGA website shows that expenditure by the agriculture ministry for April-June was 15 per cent of the full year target compared with 37 per cent last year. Civil aviation spent 14 per cent of the full-year allocation compared with 60 per cent last year. Power was 28 per cent, compared with 53 per cent, railways was 25 per cent, compared with 33 per cent, while road transport and highways was just 1 per cent of full-year allocation, compared with 35 per cent.
On the other hand, the Ministry of Chemicals and Fertilizers, and Petroleum and Natural Gas saw higher spending compared to the same period last year because of clearing of a part of subsidy dues.
“A post-election and pre-Budget lull in spending in June 2019, contributed to the Centre’s fiscal deficit in Q1 FY2020 printing largely in line with the year-ago level, even as tax growth was subdued,” said Aditi Nayar, principal economist with ICRA.
“The rollover of last year’s subsidy is evident, as can be seen by the expenditure on fertilizers and food departments, where expenditure was higher — fertilisers 39 per cent of target (24 per cent last year) and food 49 per cent (51 per cent last year),” said Madan Sabnavis, chief economist with CARE Ratings.
Tax collections have been lower this year as percentage of the budgeted amount. Consequently, both revenue and capex have been lower this year. Lower capex also gets reflected in the core sector data as just before elections, there was a slowdown in spending. Capex may be expected to pick up in the coming months,” Sabnavis said.
Total revenue for the April-June quarter was around Rs 2.9 trillion, or 13.9 per cent of the full-year target of Rs 20.80 trillion. Net tax revenues came in at 14.7 per cent, compared with 16 per cent, non-tax revenue was 12.3 per cent, broadly similar to the same period last year, while non-debt capital receipts were 4.6 per cent versus 11.8 per cent.
“While the first quarter tax collections are affected by tax refunds of previous year, current growth momentum will have an impact on tax collections. On the whole, unless the consumption slowdown is reversed quickly, it will be a tough task for the government to achieve the FY20 fiscal deficit,” said Devendra Kumar Pant, chief economist at India Ratings.
“At present, we can't rule out that expenditure cuts may be required to prevent a fiscal slippage, if the revenue targets are missed,” said ICRA’s Nayar.