India’s Fiscal Deficit In First Half Of FY21 Rises To 115% Of Budgeted Target
The Central Secretariat buildings stand in New Delhi, India. (Photographer: Anindito Mukherjee/Bloomberg)

India’s Fiscal Deficit In First Half Of FY21 Rises To 115% Of Budgeted Target

India’s fiscal deficit touched 115% of the budgeted target in the first half of 2020-21 as the Covid-19 pandemic continued to hurt government’s revenue while expenditure remained close to the same level last year.

The gap between revenue and expenditure stood at Rs 9.14 lakh crore during April-September, according to data on the website of the Controller General of Accounts. The fiscal deficit stood at 93% 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 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. But with the central government borrowing an additional Rs 1.1 lakh crore to give loans to states for meeting goods and services tax shortfall, its total borrowing will be little over Rs 13 lakh crore. To be sure, the additional borrowing of Rs 1.1 lakh crore would be counted as states’ deficit, and not the centre’s.

India had imposed the world’s biggest lockdown, effective March 25, to curb spreading of the coronavirus. That froze economic activities, barring essential services, and capped consumption. While the nation gradually restarted activities, the economy is still headed toward its worst annual contraction in more than four decades. The Reserve Bank of India expects Indian economy to contract 9.5% in 2020-21.

The nation’s revenue receipts stood at 27% of the target set for the current fiscal against 42% achieved a year ago. The government’s revenue was Rs 5.50 lakh crore in the April-September 2020 period.

The government’s total expenditure during the first half of the year stood at Rs 14.79 lakh crore. That’s 49% of the full-year target compared with 53% spent last year. In the same period last year, the government had spent Rs 14.88 lakh crore.

  • Capital expenditure was 40% of the budgeted target of Rs 4.12 lakh crore.

  • Revenue expenditure was at 50% of the full-year target of Rs 26.30 lakh crore.

  • Revenue deficit was at 125% of the budgeted target of Rs 6.09 lakh crore.

The monthly expenditure trends revealed a discordant sharp contraction in revenue and capital expenditure in September, suggesting that the expenditure management restrictions are outweighing the fiscal support measures that have been announced by the government so far, said Aditi Nayar, vice president at ICRA Ltd.

Tax Revenue

The government’s gross tax revenue dropped 21.5% year-on-year to Rs 7.21 lakh crore in April-September. The net tax revenue collected during the period was Rs 4.58 lakh crore, about 28% of the budget target of Rs 16.35 lakh crore, and a drop of over 24% year-on-year.

  • Of this, Rs 1.66 lakh crore was collected as income tax against Rs 2.13 lakh crore last year. About Rs 1.50 lakh crore was collected as corporate tax, which is 40% lower than last year’s mop-up.

  • Direct tax collection stood at Rs 3.24 lakh crore compared with Rs 4.69 lakh crore last year.

  • Total goods and services tax collected by the central government was Rs 2.25 lakh crore during the period.

The easing pace of decline in corporation tax, and income tax posting a small growth over the preceding month in September is an “encouraging trend”, and mirrors the recovery displayed by a number of non-agricultural lead indicators during the period, said Nayar.

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