Fiscal Deficit Reaches 96.1% Of Target Amid Slippage Concerns

The Government of India exhausted 96.1 percent of its fiscal deficit target by October, suggesting that it might overshoot its deficit target of 3.2 percent of GDP during the current year.

Fiscal deficit, the gap between the government's earnings and spending, stood at Rs 5.25 lakh crore in the April to October period, compared to the Rs 5.47 lakh crore target for the current financial year, as per the data released by the Controller of General Accounts. The deficit increased from September, when it was at 91.3 percent of the target at Rs 4.99 lakh crore.

The revenue deficit too increased to 124.7 percent of the full year target at Rs 4 lakh crore.

The government’s finances have been strained due to volatility in indirect tax revenues after the implementation of the Goods and Services Tax (GST). Data released earlier this week showed the government collected the lowest monthly revenue yet from GST in October, as businesses used input credits to offset their liability.

This, in a year when it chose to front-load spending. Revenue expenditure in the April-October period stood at 61.5 percent of the budget allocation compared to 59 percent last year. Capital expenditure stood at 52.6 percent in the first seven months of the fiscal year compared to 50 percent last year.

Fears that the government may not meet its fiscal deficit target has pushed up bond yields. On Thursday, the benchmark 10-year yield was trading at 7.05 percent in afternoon trade. The government has not yet announced any additional borrowings.

Apart from regular expenditure commitments, the government also needs to make space for recapitalisation of state owned banks.

In October, the Indian government unveiled a Rs 2.11 lakh crore recapitalisation package for state-owned banks to enable them to provide for bad loans. Most of this recapitalisation, however, would be done through bonds and may not lead to an immediately outflow from the government’s coffers. The government has also committed to spending Rs 7 lakh crore on the Bharatmala roads project over the next five years.

Some of this may mean that the government will fail to meet its 3.2 percent fiscal target this year. This, however, will not be a problem, market expert Andrew Holland told BloombergQuint in an interview last week. “I think there will be some slippage and if it is no more than 0.5 percent, that’s okay. We are an emerging economy and still growing very quickly. So, I don’t think we should worry so much, as long as growth is coming through,” he said.