India’s Fiscal Deficit Target Nears Exhaustion Amid Calls For Stimulus

The government of India has exhausted 96.2 percent of its fiscal deficit target by August amid calls for a fiscal stimulus package to revive the slowing economy.

Fiscal deficit, the gap between the government’s earnings and spending, stood at Rs 5.25 lakh crore in April-August, compared to the target of Rs 5.47 lakh crore for fiscal 2017-18, according to data released by the Controller General of Accounts. In July, fiscal deficit stood at Rs 5.05 lakh crore, reaching 92.4 percent of the full-year target.

The revenue deficit was at 133.9 percent or Rs 4.31 lakh crore in April-August.

Other Highlights

• Capital expenditure in the April-August period was lower than in the corresponding year. The government’s capex stood at Rs 1.09 lakh crore, around 35.5 percent of the budgeted target. This figure was 37 percent in the same period last year.
• Revenue expenditure stood at Rs 8.4 lakh crore, nearly 46 percent of the full year target. This too was higher than 41 percent in the corresponding period last year.
• Revenue from tax receipts reached 27.8 percent of the target at Rs 3.4 lakh crore. Non tax revenue stood at 0.7 lakh crore or 24 percent of the target.

The fiscal deficit numbers do not include collections from the Goods and Services tax hence it may be a bit “overstated” right now, Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, told BloombergQuint ahead of the announcement of the April-August numbers. The real picture on the fiscal side will emerge only from September when the advance tax collections start coming in, Bhardwaj said. It will also be a function the GST collections, she added.

The higher gap will make it tougher for the government to meet its FY18 fiscal deficit target of 3.2 percent of the gross domestic product. The Centre is considering a fiscal stimulus package to spur economic growth which has slumped to its lowest in three years on stagnant private investments, weak exports and one-off disruptions due to demonetisation and GST implementation. Finance Minister Arun Jaitley had said that policymakers will take “appropriate actions” to address growth concerns.

The government has already front-loaded its borrowings after an early Budget presentation to kickstart the investment cycle. But central and state finances remain constrained. India Ratings and Research estimates a Rs 33,500 crore revenue shortfall for the government in the ongoing fiscal. The combined deficits of Indian states too has worsened to 2.8 percent of GDP at the end of March, from 2 percent between 2011-14, according to HSBC.

Finance Secretary Subash Garg on Thursday told reporters that the government will not borrow more than it had budgeted for now, but will take a decision by November end or December.