Centre considering options to ensure there’s no fiscal breach

Government has so far maintained that the 3.3% target will be met

The government has so far maintained that the fiscal deficit target for the year will be met, without compromising on capital expenditure. As the exercise for the interim budget 2019-20 begins, policymakers in the finance ministry are considering a number of steps to ensure no fiscal breach.

Some of them are time-tested. Like rolling over subsidy payments to the first quarter of the next fiscal year, or taking back amounts unspent by various ministries. Some measures, however, may be new. Business Standard has learnt from informed sources that the Centre is considering holding back some portion of goods and services tax (GST) compensation to states, and some portion of integrated GST (IGST) due to states, till March 31, 2019 and disbursing them on April 1, the start of the 2019-20 fiscal year.

The idea is that with the help of these measures, the fiscal deficit target of ~6.24 trillion, or 3.3 per cent of gross domestic product (GDP), will be shown as met, on paper at least. For taking over some portion of compensation to states, the Narendra Modi government has legal backing from a recent amendment to the GST Compensation to States Act.

Part 3 of Section 10 of the Act states that 50 per cent of the amount remaining unutilised in the compensation fund at the end of five years will be transferred to the consolidated fund of India, as the share of Centre, and the balance will be distributed amongst the states in the ratio of their total revenues from GST. According to a notification dated August 29, that part was amended

to say that 50 per cent of the unutilised amount can be transferred into the consolidated fund of India at any time in any year till the end of the five-year period, when the fund lapses.

This means that on any day the central government decides to transfer to itself 50 per cent of the unutilised amount lying in the compensation fund, it can do so.

“The writing is on the wall. A shortfall in GST is expected and our expenditure commitments have only grown. Direct taxes will exceed budgeted estimates, but it is unlikely that it will balance out other factors, including non-tax revenues,” admitted an official.

The finance ministry has already begun the budgetary exercise and sought inputs from different central ministries. The 2019-20 vote-on account, or interim budget, will be the last by the current BJP-led NDA government, before the 2019 general polls. Meetings are being held internally and will be held with all ministries finalising revised expenditure for the current fiscal and projections for the next financial year.

Officials admit that the Centre will have to be careful while holding back some portions of the IGST and compensation, even with legal backing for the latter as such a proposal could run afoul of the GST Council. “Whatever we hold back till March 31, will also reflect as a pending amount in the books of the states and will affect their fiscal deficits,” said a second official.

As reported earlier, the Centre could face a shortfall of more than ~1 trillion in its share of GST, and could see additional expenditures of more than ~450 billion.

On the expenditure side, oil subsidies at the end of September had already exceeded ~460 billion, compared to budgeted estimate of ~250 billion. The central government’s internal spending estimates show that it expects an additional outlay of ~200 billion just for the newly announced minimum support price obligations for cereals and pulses. This will be over and above the budgeted food subsidy estimate of ~1.69 trillion.

The government has also announced that it will provide a support of ~20 billion extra for state-run carrier Air India, over and above ~163 billion announced in the budget. As reported earlier, the outlay for Ayushman Bharat could increase by ~35 billion.

“When it comes to fuel subsidy payments, the full amounts aren’t released till the audited data comes in from the oil ministry. So, a lot of the payments go out in April and May of the next fiscal year,” said a former finance ministry official who has been part of multiple budget-making teams. “And by cutting down on revenue expenditure and asking back unspent amounts, the government can manage some leeway on not substantially exceeding total expenditure targets. However, it remains to be seen what kind of shortfall one sees in the GST and divestment,” the official said.

The idea is that with the help of these steps, the fiscal deficit target of ~6.24 trillion, or 3.3% of the GDP, will be shown as met, on paper at least