Indian government may not meet its fiscal deficit target because of lower tax collections: India Ratings

  • For the third straight year, the Indian government’s fiscal deficit is likely to be 3.5% of GDP instead of 3.3%, ratings agency India Ratings & Research has predicted.
  • As per the calculations by the research firm, the fiscal deficit may breach the budgeted target of ₹6.24 trillion
  • According to India Ratings, the country’s GST tax collection for the first half of FY19 stood at 4.3% against its budgeted growth of 22.2% for FY19.
The Indian government may not be able to meet its fiscal deficit target for FY19 in part due to the shortfall in tax revenues and lower disinvestment revenue, rating agency, India Ratings & Research, has warned.

As per the calculations by India Ratings, India’ fiscal deficit is likely to be ₹399 billion more than what was targeted by India’s Finance Ministry earlier this year, India Ratings said in a recent report. The government had set a fiscal deficit target of ₹6.24 trillion or 3.3% of GDP. But given the current financial trends, the deficit is likely to be ₹6.67 trillion or 3.5% of GDP, said the report.

This will be the third consecutive year when India’s fiscal deficit will be 3.5% of GDP, noted the report.

The agency anticipates a tax revenue shortfall of ₹224 billion primarily because of the shortfall in proceeds from direct and indirect tax collection. Despite the government’s efforts to prevent revenue leakage in GST, tax collection only rose 4.3% during the first half of FY19, much lower than the budgeted growth of 22.2% for FY19.

Additionally, the government is also likely to miss its disinvestment target due to lower receipts. As of October, total disinvestment receipts were nearly ₹152 billion against the budgeted receipt amount of ₹800 billion. Even though the central government may expect a pick up in disinvestment in December but it will not be enough to make up for the shortfall, said India Ratings.

Revenue Expenditure growth, which was also slightly lower than the target in the first half of FY19 is now expected to boost mainly because of a surge in the minimum support prices of kharif crops and the implementation of the government’s Ayushman Bharat program for bringing affordable insurance for Indian masses.

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