India: Fiscal deficit hits 112% of target in Nov 17

  • The Centre’s fiscal deficit breached the budgeted level to touch 112% of the full-year target in just eight months, reinforcing concerns about a slippage in 2017-18 unless revenue mop-up goes up substantially and/or the government reins in spending in 1Q18.
  • The deficit in the corresponding period of 2016 was 85.8%. A front-loading of expenditure following the Budget date advancement in FY18 made the deficit figures up to Nov 17 appear worse.
  • A massive plunge in non-tax revenue and lower-than-expected goods and services tax (GST) collection caused a revenue shortfall, while both revenue expenditure and the more-productive capital spending inched up, driving up fiscal deficit to INR6.12tr against the full-year estimate of almost INR5.47tr according to official data. Earlier, the government announced plans to borrow an additional INR500bn through dated securities this fiscal.
  • However, with direct tax collection still keeping with the desired trend, an increase in tax mop-up, PSU dividends and disinvestment receipts in the remaining months of the fiscal would be key to preventing a flare-up of the fiscal deficit, which was targeted at 3.2% of GDP in FY18.
  • Since direct tax collections usually go up in the last quarter of a fiscal, the government may hope to see a repeat of the trend in FY18 as well. However, in the case of GST, only eight months’ collections will be accounted for in the current fiscal, though by end-Mar 18 the new tax will have existed for nine months.
  • Revenue deficit touched 152% of the Budget estimate for the full year during Apr 17 – Nov 17. At 33% of the budgeted target up to Nov 17, the receipt of dividends and profits (a major part of non-tax revenue) trailed 2016’s level of 70%. The subsidies payout, however, remained at 86% of the full-year target, a tad higher than from 2016.
  • Apart from direct tax collection, higher disinvestment revenue provides some hope, especially after the Reserve Bank of India sharply cut its annual dividend to the government.
  • Listing of insurance companies offered an extra INR174bn up to Nov 17, while total disinvestment proceeds are expected to exceed INR1tr this fiscal, higher than the budgeted level of INR725bn.
  • After front-loading in initial months, the growth in capex has slowed a bit to keep pace with the target. Due to faltering GST collection, the Centre’s net tax revenue, after transfer of states’ share, stood at 57% of the target.

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