New Delhi: India’s external risks showed signs of waning with the current account deficit (CAD) narrowing to 2.5% of gross domestic product (GDP) sequentially in the December quarter (Q3), even as domestic risks increased with the fiscal deficit in the 11 months to February touching 134% of the budgeted target, according to official data released on Friday.

India’s balance of payment eased mainly on account of falling oil prices, while lower-than-expected tax collections and continuing government spending were responsible for the widening fiscal deficit.

However, while releasing the borrowing programme for the first half (April-September) on Friday, economic affairs secretary Subhash Chandra Garg said the government is sticking to its fiscal deficit target of 3.4% in 2018-19 and 2019-20.

The Reserve Bank of India’s monetary policy committee will release its monetary policy statement on 4 April in which it is widely expected to cut interest rates for the second consecutive time, given mounting growth concerns even as inflation remains well within its ceiling.

GDP growth for fiscal year (FY) 2018-19 is projected to be 7%, which is a drop from 7.2% in FY18, the figure having moved up earlier on account of the revision in the statistical series.

During the first half of 2019-20, the government will borrow 62.3% of its full-year borrowing plan at $4.42 billion, at the rate of ₹17,000 crore per week. Though the net borrowing programme for 2019-20 is similar to last year’s level at ₹4.48 trillion, gross borrowing is at ₹7.1 trillion because of higher repayment obligations in the next fiscal year.

Garg said the lower-than-estimated tax collections are a result of the developments that tend to take place in the last month of the fiscal. “You receive a lot of the direct taxes and larger indirect taxes. So the last month always changes the equation," he said.

While the revised net direct tax collection target for 2018-19 is ₹14.84 trillion, the government has been able to collect only ₹10.9 trillion till February, leaving a whopping ₹3.94 trillion to be collected in March. As this is an election year, there may not be much scope for expenditure cuts in the last month of the fiscal, though the total expenditure is still 81.5% of the full-year target in the first 11 months, against 83% during the same period a year ago.

However, the government has crossed the disinvestment target this fiscal with the state-owned Power Finance Corp. Ltd finalizing a deal to acquire a majority stake in REC Ltd for ₹14,500 crore. “As against a target of ₹80,000 crore for disinvestment for the current year, the divestment receipts have touched ₹85,000 crore today," finance minister Arun Jaitley said in a tweet on 23 March. The disinvestment target for FY20 is ₹90,000 crore.

Devendra Kumar Pant, chief economist at India Ratings and Research (Fitch Group), said over-achievement of disinvestment will provide some buffer to the government. “However, the slow pace of tax collection would keep pressure on the fiscal deficit. A higher GDP number than the one used in the budget will help the government inch closer to FY19 fiscal deficit of 3.4% of GDP," he said.

With oil prices receding from their peak, CAD declined to 2.5% of GDP in December from 2.9% of GDP in the September quarter. However, it increased to 2.6% of GDP during the April-December period from 1.8% during the same period in the previous year.

India’s trade deficit increased to $145.3 billion in April-December 2018 from $118.4 billion in April-December 2017. While net FDI inflows in April-December 2018 increased to $24.8 billion from $23.9 billion in April-December 2017, portfolio investment recorded a net outflow of $11.9 billion in April-December 2018, against an inflow of $19.8 billion a year ago.

Madan Sabnavis, chief economist at Care Ratings, said the CAD is expected to moderate further in Q4 with the trade deficit also coming down post the decline in crude oil prices in global markets.

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