India Fiscal Deficit Breaches Target To Hit 4.6% In FY20

The Indian government missed even its revised fiscal deficit target for 2019-20, showed data released by the Controller General of Accounts on Friday.

The government's fiscal deficit settled at Rs 9.36 lakh crore, or 122% of its revised target of Rs 7.67 lakh crore. The government had seen its fiscal position deteriorate even before the Covid-19 crisis hit the economy and government finances. Impact of the disruptions caused by the virus starting from the month of March only added to the pressure.

Fiscal Deficit As A % Of GDP

The government's fiscal position in the year gone by was complicated further by economic growth which was much lower than projected.

National Income data released by the government pegged nominal gross domestic product at Rs 203.40 lakh crore .

As such, fiscal deficit as a % of GDP settled at 4.6% in FY20. This is the highest in seven years.

India needs to revert back to its Fiscal Responsibility and Budget Management Act 2003, and should again target revenue and fiscal deficit both, said N.R. Bhanumurthy, a professor at National Institute of Public Finance and Policy. “Otherwise, macro-fiscal imbalance would worsen further,” he said.

Revenue Shortfall

The government's revenue for the fiscal ended March 31 was Rs 16.82 lakh crore, which was just 91% of the full year's target of Rs 18.50 lakh crore.

A slowdown in India's growth affected the government's tax collections. The government's tax collection was Rs 13.56 lakh crore or 90% of the target of Rs 11.14 lakh crore.

Gross tax revenue was 3.4% lower than last year at Rs 20.09 lakh crore. The considerable revenue shortfall and limited expenditure compression led to the government's fiscal deficit overshooting its revised estimates, and this is expected to spike yields of government securities, said Aditi Nayar, vice president at ICRA Ltd.

Meanwhile, lower inflows via disinvestment impacted non-tax revenue. Divestment receipts were Rs 50,299 crore against the target of Rs 65,000 crore.

Overall non-tax revenue was Rs 3.26 lakh crore, or 94% of the revised target.

Expenditure Trends

Fears of a shortfall in revenue had prompted the government to tighten spending. However, much of that came towards the second half of the year and had limited impact. The government had to step up spending once again as the Covid crisis hit the economy.

For the full year, expenditure stood at Rs 26.86 lakh crore, 99.5% of the revised target. Capital expenditure stood at Rs 3.4 lakh crore or 97% of target, while revenue expenditure stood at 133% of the revised estimate.

Although the government paid 98% of major subsidies—including food, fertilisers, urea and petroleum—it paid about 87% of the total subsidy estimated of Rs 38,568 crore.

Decline in subsidy outgo could be due to a combination of lower prices and some rollover to the next year, said DK Pant, chief economist at India Ratings.

For the ongoing fiscal, fiscal deficit as on April-end was 2.79 lakh crore or 35% of the budgeted target of Rs 7.96 lakh crore.

India's fiscal deficit for the ongoing fiscal is estimated to double to around 6.7-7.0% of GDP, from the budgeted level of 3.5% of GDP, Nayar from ICRA said in a note. The agency expects net tax revenues of the government to fall short of the budgeted target by Rs. 3.3 lakh crore, divestment proceeds to trail the Rs 2.1-lakh-crore target by at least Rs 1 lakh crore.