Analysts warn of fiscal slippage; see 4.1% deficit

Mumbai, Sept 20: The spectre of fiscal slippages awaits the country after the huge tax giveaways, which though will boost the sputtering growth engine and is positive from a long-term perspective, warned analysts.

The government has pegged the fiscal impact of the 10 percentage points cut in corporate tax worth Rs 1.45 lakh crore in revenue foregone, is 0.7 percent of GDP.

While announcing the booster measures, Finance Minister Nirmala Sitharaman, however, side-stepped all questions on fiscal deficit.

The budegt has pegged fiscal deficit at 3.3 per cent of GDP for FY20 and the government has already crossed 77 per cent of that in July.

"Considering the present slowdown chances are high that the government might miss the fiscal deficit target for FY20," Deepthi Mathew, an Economist at Geojit Financial Services, said. She, however, added the move will be helpful from a long-term perspective for the fiscal.

HDFC Bank's house economists said the fiscal deficit number will bloat up to 4.1 per cent as against the targeted 3.3 per cent and also result in Rs 1.50 lakh crore in excess government borrowing beyond the budgeted Rs 7.04 lakh crore.

The government might miss the tax revenue target by a wide margin is clear from the first half direct tax mop up, which inched up just 4.7 per cent against a steep 17.5 per cent budgeted for the year. GST has also been missing as only in April it could cross the ideal Rs 1-lakh crore mark so far this fiscal year.

Without commenting on the fiscal deficit or impact in government finances, global ratings agency Moody's welcomed the moves as "credit positive".

"These measures would increase the chances of higher fiscal deficit and government may have to resort to spending cuts or embark on higher disinvestments," Arun Thukral, the head of the brokerage Axis Securities, said.

Icra's chief economist Aditi Nayar said fiscal slippage "appears inevitable" now and added that expenditure cuts will be required to prevent the fiscal deficit as well as G-sec yields from rising too sharply.”

An analysis of BSE500 companies by the brokerage Emkay Global reveals companies should see a 12 per cent drop in tax bill on their FY19 numbers, and it pegged the impact to fiscal deficit because of the moves at 0.40 per cent.

—PTI