NEED TO SPEND, BUT WHERE IS THE MONEY?
The slowdown in the economy is set to impact the government in more ways than one. According to media reports, the central government estimates a Rs 2 lakh crore shortfall in gross tax revenues for 2019-20. The budgeted tax collection estimate for the current fiscal was Rs 24.6 lakh crore.
Even in the last fiscal, the government fell short of its targeted revenues by a similar amount. While the gross tax revenue estimate for 2018-19 was Rs 22.7 lakh crore, the provisional actuals, as per the Economic Survey, were Rs 20.8 lakh crore, showing a shortfall of Rs 1.9 lakh crore. The GDP growth that fiscal was at a five-year low of 6.8 per cent.
The government has shared its assessment with the Fifteenth Finance Commission, which in turn has asked the finance ministry to give it a revised memorandum taking into account the economic slowdown, tax trends and fiscal situation, say reports.
“There will be a shortfall, since when the budget was drawn up, the country’s growth was pegged at 7 to 7.2 per cent. Today, we are talking about 6 to 6.1 per cent,” says Madan Sabnavis, chief economist at Care Ratings. In the first quarter of 2019-20, India grew at 5 per cent, the lowest in six years. The Reserve Bank of India (RBI) has lowered India’s growth forecast for 2019-20 to 6.1 per cent from the 6.9 per cent it projected earlier. Rating agencies and multilateral institutions too have revised India’s growth estimates. The World Bank has cut India’s GDP growth forecast for 2019-20 to 6 per cent, compared with the 7.5 per cent it projected in April this year, citing a deceleration in local demand and a weak financial sector. The International Monetary Fund followed suit with a lowered 6.1 per cent forecast for India this fiscal.
“Any kind of a reduction in GDP growth will get reflected in GST collections as well as in direct taxes and corporate taxes,” Sabnavis adds. Lower tax collection will mean that the Centre will have less money to disburse to states. It will also have a bearing on the Finance Commission’s decision on devolution of taxes to the states for the five-year period starting April 1 next year.
The government is also unable to reach the ballpark GST collections figure of Rs 1 lakh crore most months. This too is a result of the slowdown. In August, GST collections had dropped to Rs 98,202 crore compared to Rs 1.02 lakh crore in July this year. In June too, revenue collection had been below the desired mark, at Rs 99,939 crore.
Last month, the government also reduced corporate tax rates retrospectively from April this year. The corporate tax rate for domestic companies has been slashed to 22 per cent from the earlier 30 per cent, subject to companies not availing of other exemptions or government incentives. The new effective corporate tax rate works out to 25.17 per cent, including surcharges and cesses. The government had estimated this would cost the exchequer Rs 1.45 lakh crore a year (0.7 per cent of GDP) in tax revenues. At the same time, the government said it is committed to its earlier expenditure targets.
Lower income this year and high expenditure will widen the country’s fiscal deficit. ‘We believe the central government’s fiscal deficit could be around 3.7 per cent of the GDP in fiscal 2019-20, which is higher than the budgeted estimate of 3.3 per cent and our previous assumption of 3.5 per cent,’ reads a research note from HSBC. ■
THE GOVT HAS MISSED THE GST COLLECTION TARGET OF Rs 1 LAKH CRORE MOST MONTHS THIS FISCAL