FISCAL DEFICIT WIDENS TO 95% IN FIRST HALF OF FY19

The central government’s fiscal deficit touched 95.3 per cent of its full-year target of ~6.24 trillion in the first half the current financial year, the data from the Controller General of Accounts showed. The fiscal health over these months is slightly worse than the year-ago period when the deficit stood at 91.3 per cent. Meeting the fiscal deficit target of 3.3 per cent of gross domestic product will be challenging as indirect tax collections came in below expectations, disinvestment proceeds were lacklustre and the Centre has released 90 per cent of its full year fuel subsidy in the first half of FY19.

The central government’s fiscal deficit touched 95.3 per cent of its full-year target of ~6.24 trillion in the first half the current financial year (April to September), the data from the Controller General of Accounts (CGA) showed. The fiscal health over these months is slightly worse than the year-ago period when the deficit stood at 91.3 per cent.

Meeting the fiscal deficit target of 3.3 per cent of gross domestic product (GDP) will be challenging as indirect tax collections came in below expectations, disinvestment proceeds were lacklustre and the Centre has released 90 per cent of its full year fuel subsidy in H1FY19.

“The likelihood of meeting the budgeted targets for revenues related to the goods and service tax (GST), dividends and profits, and disinvestment would determine whether a fiscal slippage emerges relative to budgeted level for FY2019,” said Aditi Nayar, principal economist of Icra.

There are other areas such as the adequacy of outlays for revised MSPs, the NHPS, fuel and other subsidies, and bank recapitalisation that will determine the impact of the fiscal deficit, Nayar added. The Centre will have to contain its excess expenditure over its receipts at ~295 billion in the remaining six months to meet the budgeted figures. These days, the Centre front-loads its expenditure.

On the revenue side, direct tax collections, including both corporate and personal income tax, grew by a robust 16.9 per cent to ~4.3 trillion in H1FY19, up from ~3.75 trillion in H1FY18. In comparison, the budget had estimated direct taxes to grow by 14.4 per cent in 2018-19.

Revenues from corporation tax grew by 17.2 per cent in H1FY19, while personal income tax collections rose by 16.5 per cent over the same period.

However, indirect tax collections remain a source of concern.

“Indirect tax collections have contracted by 2.8 per cent in H1FY2019 relative to H1 FY2018, which is discouraging, particularly given the excise cut on fuels that would further crimp indirect tax revenues in H2 FY2019,” says Nayar.

Indirect taxes here include central GST, Union Territory GST, Integrated GST, customs duty, excise duty and service tax. On the non-tax side, the Centre has mopped up around 44 per cent of its budgeted non-tax revenue target of ~1.08 trillion, up from 28 per cent last year.

However, non-debt capital receipts have been lower in the first of the current year as compared to last year with the Centre only mopping up ~99.4 billion or 12 per cent of the target of ~800 billion. In comparison, it had collected 34 per cent of its target last year by this time.

“The amount of dividend from nationalised banks and financial institutions and non-financial PSUs to the GoI would need to rise considerably in FY19 to meet the target for dividends and profits, which may prove challenging,” Nayar noted.

On the other hand, the Centre’s total expenditure has grown by 13.5 per cent in H1FY19, with capital expenditure growing by a healthy 20 per cent.

To finance its fiscal deficit, the government has borrowed ~3.5 trillion from the markets as against the budgeted target of ~4.07 trillion. The remaining has been met through the national small savings fund, state provident funds and securities against small borrowings.