People walk past North Block of the Central Secretariat building, which houses the Ministries of Finance and Home Affairs, stands in New Delhi, India (Photographer: Prashanth Vishwanathan/Bloomberg)

Fiscal Deficit Reaches 103.9% Of Full Year Target In October

India’s fiscal deficit breached the budgeted target for financial year 2018-19 in October.

Fiscal deficit—the gap between the government’s revenue and expenditure—stood at Rs 6.48 lakh crore at the end of October, according to the data released by the Controller General of Accounts. That’s 103.9 percent of the budgeted estimate of Rs 6.24 lakh crore for 2018-19.

The gap had stood at 96.1 percent in October last year. To be sure, if revenue collections pick up in the remainder of the year, the government may still meet its target. If not, the government may be under pressure to prune expenditure.

Total expenditure for the April-October period rose to Rs 14.5 lakh crore, or 59.6 percent of the full-year target. This is already lower than the 61.5 percent of budget target completed in the April-October 2017 period. Capital expenditure reached 59 percent of the 2018-19 target, compared with 52.6 percent in the same period last year.

“While expenditure continues to grow, total receipts in October 2018 shrank from October 2017,” said Devendra Kumar Pant, Chief Economist at India Ratings and Research. “Non-debt capital receipts in April-October 2018 are nearly half of April-October 2017.”

Revenue deficit stood at 117.8 percent of the target compared to 124.7 percent in the same period last year.

Revenue receipts stood at 45.7 percent of the target compared to 48.1 percent in the same period last year. Tax revenue was at Rs 6.6 lakh crore, or 44.7 percent of the full-year target. In the same period last year, tax revenue had hit 51.6 percent of the budget target. One reason for this may be the continued weakness in GST collections compared to expectations, even though they surpassed the Rs 1 lakh crore mark in September.

Non-tax revenue touched 52.1 percent of the target compared to 33 percent last year. Some segments of non-tax revenue collections continue to lag. Disinvestment proceeds are at a limited Rs. 10,000 crore or 12.6 percent of the budget estimate, noted Aditi Nayar, principal economist at ICRA.

Although potential buybacks by some PSUs, and purchase of the government stake in certain entities by other PSUs may help to shore up the disinvestment proceeds, concerns remain over the likelihood of achievement of the full year target of disinvestment of Rs 80,000 crore, through the market route.
Aditi Nayar, Principal Economist, ICRA

The fiscal data will put a question mark on the government’s ability to meet its fiscal deficit target for the second year running. Last year the government had initially targeted a fiscal deficit of 3.2 percent of GDP but later revised it to 3.5 percent of GDP.

While Finance Minister Arun Jaitley has repeatedly assured that the fiscal targets for the current year are within, economists see a rising probability of a higher than expected fiscal deficit this year.

Based on Q2FY19 GDP growth at 7.1 percent and likelihood of lower growth in Q3 FY19, the chances of fiscal slippage are very high, India Ratings expects FY19 fiscal deficit to be 3.5 percent of GDP.
Devendra Kumar Pant, Chief Economist, India Ratings and Research