India’s April-August Fiscal Deficit Reaches 109% Of Budget Target

India’s fiscal deficit reached 109% of the full-year target in the first five months of the ongoing financial year as the coronavirus pandemic continued to be a drag on the government’s finances.

The gap between revenue and expenditure was at Rs 8.70 lakh crore during April-August, according to data on the website of the Controller General of Accounts. The deficit stood at 79% of the budgeted target in the year-ago period.

The central government’s fiscal deficit target estimated in the Union Budget 2020-21 was Rs 7.96 lakh crore, or 3.5% of the gross domestic product. This, however, is expected to be revised as the government increased its borrowing target to tide over the Covid-19 crisis. Market borrowings for the fiscal ending March 2021 have been increased to Rs 12 lakh crore from Rs 7.8 lakh crore budgeted earlier. It has already borrowed Rs 7.66 lakh crore from the market and will borrow Rs 4.34 lakh crore in the second half of the current fiscal.

India imposed the world’s biggest lockdown, effective March-end, to curb spreading of the virus, stalling economic activities, barring essential services, and capping consumption. That pushed the already slowing economy toward a rare annual contraction in more than four decades. India’s real GDP contracted 23.9% in the April-June quarter.

The nation’s revenue receipts stood at 18% of the target set for the current fiscal against 31% achieved a year ago. The government’s revenue was Rs 3.71 lakh crore in the April-August 2020 period.

The higher-than-budgeted deficit in the first five months was because revenue receipts contracted by around a fourth, which is in line with India’s growth trajectory, said Devendra Pant, chief economist at India Ratings. However, muted expenditure growth is a puzzling at a time government expenditure should be greater to lift the economy, Pant added.

The government’s total expenditure during April-August stood at Rs 12.48 lakh crore. That’s 41% of the full-year target compared with 42% spent last year. In the same period last year, the government had spent Rs 11.75 lakh crore.

• Capital expenditure was 33% of the budgeted target of Rs 4.12 lakh crore.
• Revenue expenditure was at 42% of the full-year target of Rs 26.30 lakh crore.
• Revenue deficit was at 122% of the budgeted target of Rs 6.09 lakh crore.

The government’s expenditure will be augmented by the fiscal support announced under Aatmanirbhar Bharat—a post-pandemic financial rescue package—as well as the cash outgo for other items included in the First Supplementary Demand for Grants, said Aditi Nayar, vice-president at ICRA Ltd.

Tax Revenue

The government’s gross tax revenue dropped 24% year-on-year to Rs 5.04 lakh crore in April-August. The gross tax revenue stood at Rs 5.04 lakh crore during the period against Rs 6.61 lakh crore collected a year ago.

However, for the first time in the current fiscal, gross tax revenue has shown a month-on-month increase.

The net tax revenue collected during the period was Rs 2.84 lakh crore, about 17% of the budget target of Rs 16.35 lakh crore, and a drop of 30% year-on-year.

• Of this, Rs 1.17 lakh crore was collected as income tax against Rs 1.65 lakh crore last year. About Rs 64,715 crore was collected as corporate tax, which is 42% lower than last year’s mop-up.
• Direct tax collection stood at Rs 1.88 lakh crore compared with Rs 2.82 lakh crore last year.
• Total GST collected by the central government was Rs 1.81 lakh crore during the period.

The pace of contraction in corporate tax collections is expected to narrow to some extent in the coming months, Nayar said. That’s because of the impact of change in base due to corporate tax cut in last fiscal.