The Centre’s fiscal deficit has touched nearly 95 per cent of the Budget Estimate during the first five months (April-August) of the current fiscal.

Fiscal deficit is the difference between earning and expenditure of the Government and reflects the fiscal health. The number was released by the Controller General of Accounts on Tuesday.

The latest deficit number is much higher than the corresponding period of the last fiscal (2017-18) when it was 88.7 per cent (revised number). Meanwhile, the government is still hopeful of meeting the Budget target of 3.3 per cent (of Gross Domestic Product or GDP) as it expects revenue collections to accelerate in the coming months.

Decoding the data, Devendra Kumar Pant, Chief Economist and Senior Director (Public Finance) at India Ratings, said pressure on fiscal deficit is emerging both from revenue and expenditure side.

Revenue receipt growth is 130 bp (100 basis points or bp means one per cent) lower than budgeted growth and total expenditure growth is 255 bp higher than budgeted growth. On the receipt side, only corporate tax growth is higher than budgeted growth, for income tax, excise duties and custom collection, April-August growth is lower than budgeted growth. Only non-tax revenue has shown sharp growth due to higher RBI surplus transfer to government compared to last year.

Expenditure growth

Aditi Nayar, Principal Economist at ICRA, said despite the transfer of the surplus by the RBI, the fiscal deficit rose on a month-on-month basis (it was 86.5 per cent at end-July 2018) on account of a high growth in expenditure amid a decline (year-on-year basis) in tax revenues in the month of August.

Revenue growth stood at 13.3 per cent in April-August, modestly outpacing the 11.6 per cent rise in revenue expenditure, even as capital outlay expanded by a higher 20.6 cent in the first five months of the fiscal year. In the month of August, the tax revenue (gross of refunds of States) displayed a contraction of 1.9 per cent, driven by indirect taxes, even as direct tax collections recorded a considerable growth on a small base.

One of the key finding is that 74 per cent of the Budget Estimate for fuel subsidies has been released in the first five months of the fiscal year.

With the rise in crude oil prices and the depreciation of the rupee against dollar, the gross under-recoveries of the oil marketing companies for the ongoing fiscal are estimated to exceed the budgetary allocation for fuel subsidies, exerting pressure on the overall fiscal deficit target.

Nayar expects small savings schemes to provide an attractive alternative to bank deposits in the coming months, which should help the Government of India to avail a higher net amount from the National Small Savings Fund, compared to its target of ₹1 lakh crore during current fiscal. This may result in the government announcing a market borrowing programme for the second half of the current fiscal which may be smaller than what has been expected so far by the markets.

On whether the government will manage to meet budgeted target of fiscal deficit, Pant said, “Second advance tax payment for corporate and income tax will reflect in September collections and that will give a more clear picture on government’s ability to achieve fiscal deficit target of 3.3 per cent of GDP.”

Nayar said, “The market would continue to monitor the likelihood of meeting the budgeted targets for revenues related to the GST, dividends and profits, and disinvestment, and assess whether the outlays required for revised MSPs, the NHPS, fuel and other subsidies, and bank recapitalisation would prove to be adequate.”