Fiscal consolidation hinges on revenue
The Union Budget 2020-21 has aimed at reducing the fiscal deficit to 3.5 per cent of the GDP in the coming fiscal year from 3.8 per cent of the GDP included in the Revised Estimates (RE) for 2019-20, which appears challenging.
Although, a gross tax revenue expansion of 12 per cent seems reasonable in light of the 10 per cent growth expected in the nominal GDP in FY20-21, the revenue assumptions made for FY20 seem aggressive. In particular, the government’s gross tax revenues are effectively forecast in the FY20 RE to expand by 19 per cent in Q4FY20, relative to the year-ago period. This seems unlikely given the modest recovery expected in the GDP growth.
Moreover, the underlying assumptions behind the doubling of the non-tax revenues expected from other communications services to ~1.33 trillion in the budget estimates (BE) for FY20-21 from ~0.6 trillion in FY20 RE remain unclear, especially in light of the two-year moratorium on spectrum payments. With participation in the 5G spectrum auctions expected to be muted, the government may be expecting the bulk of the Agr-related dues to be settled in FY21. The receipts from disinvestment have been scaled up sharply to ~2.1 trillion in FY20-21 from ~0.65 trillion in FY20.
Although, a pipeline of announcements provides some visibility for raising funds from this source, unless significant progress is made in the first half of FY20-21 itself. Doubts will start building up about the credibility of the fiscal correction being targeted by the government in FY21.