India’s Fiscal Deficit Breaches Full-Year Target In Four Months

India’s fiscal deficit breached the full-year target in April-July as the coronavirus pandemic continues to weigh on the government’s revenue.

The gap between revenue and expenditure reached Rs 8.21 lakh crore, or 103% of the budgeted estimate, during the reported period, according to data on the website of the Controller General of Accounts. That compares with the deficit of 79% of the budgeted target in the year-ago period.

The nation’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. That, however, was 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.

India was already grappling with an economic slowdown when the virus struck. The lockdown, effective March 25, stalled all business activities, except essentials, and capped consumption. While the curbs have slowly eased since May-end, the nation is still headed toward its first annual contraction in more than 40 years. India’s real GDP contracted 23.9% in the April-June quarter, according to data released by the Ministry of Statistics and Programme Implementation.

India’s revenue receipts stood at 11.3% of the target set for the current fiscal against 19.5% achieved a year ago. The government’s revenue was Rs 2.27 lakh crore in April-July 2020.

Its total expenditure came at Rs 10.54 lakh crore, which is 35% of the full-year target, compared with 34% spent last year. The government’s capital expenditure was 27% of the budgeted target of Rs 4.12 lakh crore.

• Revenue expenditure was at 36% of the full-year target of Rs 26.30 lakh crore.

• Revenue deficit was at 117% of the budgeted target of Rs 6.09 lakh crore.

The fiscal deficit exceeding the budget estimate for the full year in just these four pandemic-tinged months reveals the extent of fiscal stress being faced in this unprecedented crisis, said Aditi Nayar, vice-president at ICRA Ltd., in a note The central government’s fiscal deficit, according to her, is expected to surge to Rs 13.5 lakh crore in the ongoing fiscal, or 6.8% of GDP, based on a nominal GDP contraction of 7.5%.

Tax Revenue

The government’s gross tax revenue dropped 29.5% year-on-year to Rs 3.80 lakh crore in April-July. The net tax revenue stood at Rs 2.02 lakh crore during the period against Rs 3.39 lakh crore collected a year ago.

Of this, Rs 91,244 crore was collected as income tax against Rs 1.28 lakh crore last year. About Rs 53,724 crore was collected as corporate tax, which is 39% lower than last year’s mop-up.

• Direct tax collection stood at Rs 1.49 lakh crore compared with Rs 2.21 lakh crore last year.

• Total GST collected by the central government was Rs 1.37 lakh crore during the period.

With localised lockdowns arresting recovery in many sectors, the pace of the contraction in gross tax revenue recorded only a subdued improvement to 20% in July from 23% in June, ICRA’s Nayar said. The continuing impact of the economic uncertainty on corporate and individual income levels will dampen direct tax collections for the current financial year, though the pace of contraction would ease in subsequent months.

A temporary uptick in sales due to pent-up demand will boost GST collections in the initial unlock period, but may not sustain subsequently, Nayar said.