How The Government Met Its FY18 Fiscal Goal

The government managed to meet its revised fiscal deficit target for 2017-18, showed data released by the Controller General of Accounts (CGA). The fiscal deficit settled at 3.52 percent of FY18 GDP, showed the data.

The government had originally set a fiscal deficit target of 3.2 percent of GDP but revised it to 3.5 percent at the time of the Union Budget. This, according to the government, was due to volatility in indirect tax revenues due to the introduction of GST starting July. Also, the government could realise only 11 months of indirect tax revenue in 2017-18 as last day to pay GST was the 20th of the succeeding month.

However, even after the revision, it looked like the government may not be able contain its fiscal deficit within the stated limits. In February, the government’s fiscal deficit was running at 120 percent of the revised target, the monthly data put out by the CGA had shown.

What helped the government bridge the gap?

RBI Boost To Non-Tax Revenue

One upside for government finances came from non tax revenues. Non-tax revenue in the April-March period was at 97 percent of the revised estimates. Until February, the government had only met 60 percent of its non-tax revenue target.

In an earlier interview to BloombergQuint in April, Garg has confirmed that the government got Rs 10,000 crore as an interim dividend from the RBI.

The government also had a successful year in terms of disinvestment. For the full year, divestment proceeds added up to Rs 1 lakh crore, the government said at the time of the budget.

Strong Direct Tax Revenues

The CGA data suggests that net tax revenues stood at Rs 12.42 lakh crore. This is 97.9 percent of the revised target.

Direct tax revenues saw strong growth. Total net direct tax revenue collected in 2017-18 was Rs 10.03 lakh crore as against the revised estimate of Rs 10.05 lakh crore, according to data shared by the government.

The collections for indirect taxes was at Rs 9.13 lakh crore as against the revised indirect tax collection estimate of Rs 9.36 lakh crore.

“Gross tax revenues rose by 12.8 percent in FY2018, benefiting from the robust expansion in direct taxes, as well as the inclusion of Rs. 62,600 crore of the inflows from GST compensation cess,” said Aditi Nayar, principal economist at ICRA in a note. “However, the indirect tax collection was dampened by the inclusion of some taxes for a period of 11 months instead of 12 months after the transition to GST,” Nayar added.

Expenditure Savings

CGA data shows that revenue expenditure for the year settled at 96.6 percent of the revised target at the end of March. In February, revenue expenditure was at 87.5 percent of the target.

However, capital expenditure, which had been front-loaded to support economic growth, settled lower at 96.7 percent at the end of March compared to 108.9 percent in February.

The economic affairs secretary had confirmed to BloombergQuint in April that some expenditure savings had materialised through the railways, which has managed to meet some of its expenses through other sources. The revised estimates for railways capex was cut to Rs 41,814 crore  from the budgeted estimate of Rs 55,000 crore.

According to an April 14 Business Standard report, the government also reclassified nearly Rs 50,000 crore in capex assigned to the Food Corporation of India.

The Spending Mix

The government’s spending mix for the year showed that revenue expenditure constituted 87.7 percent of total expenditure. The revenue deficit was at 2.6 percent of GDP, in line with the revised estimates.

In the budget, the government had said that it intends to stop targeting the revenue deficit - a move that drew criticism from economists. In its medium term fiscal policy statement, the government had said that the differentiation between revenue and capital expenditure is not relevant for an emerging economy like India. “...apart from the creation of assets, there is also a need to focus on the correct maintenance of the assets that have been set up,” the government argued.

Capital expenditure stood at 12.3 percent of the total expenditure.