India’s fiscal deficit reaches 88% in 9 months

Krishnanand Tripathi
File Photo: Finance Minister Arun Jaitley with MoS for Finance Jayant Sinha. (PTI)

File Photo: Finance Minister Arun Jaitley with MoS for Finance Jayant Sinha. (PTI)

India’s fiscal deficit was Rs 4.88 lacs crore or $71.90 billion during the first nine months of this financial year that ends in March. This is almost 88% of the full-year target of Rs. 5.5 lac crore. But it still shows improvement in government finances as the 100% fiscal deficit target was reached in first 9 months of the last financial year.

Sunil Sinha, principal economist and director public finance of India Ratings & Research told Rajya Sabha TV: “Certainly there is an improvement in government finances in comparison with the last year.”

The government collected Rs 6.22 lacs crore in taxes between April and December this fiscal, that is 67.6% of the total tax collection target of Rs. 9.19 lacs crore in this fiscal. However, it is just 47% of the total spending during the same period which is pegged at Rs. 13.14 lacs crore.

Tax collection is generally on higher side in the fourth quarter so the government can hope to achieve the target set in the budget estimate. However, a lot depends on the performance of corporate sector.

“Corporate sector is not doing well. Government also estimates that there would be a shortfall of Rs. 40,000 crore in direct tax collection this fiscal. But it will be better off in case of indirect tax collections mainly on account of increase in excise duty on petroleum products,” added Sunil Sinha.

Total receipts from revenue and non-debt capital of the government during the first nine months stood at Rs 8.25 lakh crore. The government estimates to collect Rs 12.21 lakh crore receipts by the end of this financial year.

Commenting on the government’s borrowing plan for the rest of the financial year, Sunil Sinha said the government is holding a cash balance of around Rs. 1.25 lac crore with Reserve Bank of India, which simply means that there is enough cash available with the government. “The fear is that the government is actually not spending, otherwise so much cash with RBI is not a desirable thing. The flip side is that if so much cash is already available with the government then why it should borrow from the market?”

The government is hopeful that it can meet the target of restricting the fiscal deficit to 3.9% of GDP this fiscal. As per the fiscal road map the government needs to bring down the fiscal deficit to 3.5% of GDP in 2016-17 and then further reduce it to 3% of GDP by 2017-18.

Commenting on the possibility of meeting the fiscal deficit target, Sunil Sinha said: “In absolute terms the government will be able to achieve the target of limiting the fiscal deficit to Rs. 5.4 lac crore. It may actually do little better than that. But in terms of a percentage of GDP there may be slippages as the nominal GDP is expected to be little lower than what was estimated at the time of budget.”

Government may be able to meet this year’s target of restricting the fiscal deficit to the budget estimate. But it will be an uphill task for the government to bring it down to 3.5% of GDP by 2016-17 and further reduce it to 3% by 2017-18.

“Acceptance of the recommendations of the 7th pay commission may increase the expenditure by Rs. 1 lac crore. However, there is one silver lining – the upcoming telecom auctions. If the government is able to get that money then it would more than compensate for the increased burden,” said Sunil Sinha who closely tracks macroeconomic numbers and policies of Indian government for credit rating agency – India Ratings & Research.