April-May fiscal deficit at 58.6% of fiscal year target as revenue slumps

The Centre’s fiscal deficit for the first two months of financial year 2020-21 (FY21) came in at Rs 4.66 trillion, or 58.6 per cent of the full year target of Rs 7.96 trillion.

This was primarily because of a crunch in tax and non-tax revenues and capital receipts, official data released on Tuesday showed. It was 52 per cent for the corresponding period last year.

According to the Controller General of Accounts, net tax revenue for April-May was 2.1 per cent of the full-year target, compared with 7 per cent a year ago. Non-tax revenue was 2.8 per cent, compared with 9.1 per cent last year, and non-debt capital receipt was 0.4 per cent, as against 2.6 per cent a year ago.

Total revenue was Rs 45,498 crore, or 2 per cent of the budgeted estimate of Rs 22.46 trillion, compared with 7.1 per cent last year.

“With a severe squeeze in revenue receipts amid a marginal contraction in total spending, the Government of India’s fiscal deficit widened to Rs 4.7 trillion in the first two months of what is sure to be a very difficult fiscal year,” said Aditi Nayar, principal economist at ICRA. She added that “substantial” fiscal slippage is inevitable this year.

On the expenditure front, revenue spending for April-May was 17.4 per cent of the full-year target, compared with 19 per cent last year, indicating that the strict curbs imposed by the finance ministry might be working.

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Capital expenditure was 13.4 per cent of the full-year target, compared with 14.1 per cent last year. However, in absolute terms, capex for April-May rose to Rs 55,206 crore, as against Rs 47,703 crore a year ago.

Total expenditure for the first two months of FY21 was Rs 5.12 trillion, or 16.8 per cent of the Budget size of Rs 30.4 trillion, compared with 18.4 per cent for the corresponding period last year.

“The government has increased expenditure towards asset creation with the capital expenditure witnessing a growth of 15.7 per cent during April-May,” said Madan Sabnavis, chief economist at Care Ratings.

“Central government finances are expected to remain under significant pressure during FY21 as revenue collections are likely to be severely impacted till lockdown restrictions are significantly eased and economic activities return to normalcy,” Sabnavis said.

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He added that spending on relief measures and capital expenditure is likely to continue, and could strain finances further.

“Considering the likely revenue shortfalls and increased expenditure, we estimate the central government’s fiscal deficit to widen to around 7.1 per cent of GDP in FY21, as against the budgeted 3.5 per cent. The extension of the PM Garib Kalyan Scheme (on Tuesday) would further add another 0.45 per cent of GDP to the deficit,” he said.

ICRA’s Nayar, who expects the fiscal gap to be 6.7 per cent or wider, said that the anticipated fiscal slippage exceeds the extent to which the Centre’s planned market borrowings for FY21 have already been revised. “Accordingly, G-sec yields may harden further in the absence of further measures being announced by the Reserve Bank of India,” she said.