India’s budget under strain on day one of new fiscal year

  • India kicks off its fiscal year with revenues under severe strain. A prolonged slowdown in the economy depressed tax collections in the financial year that ended 31 Mar 20, latest official data show.
  • As India now conducts the world’s biggest lockdown, budget pressures are set to worsen. Finance Minister Nirmala Sitharaman has already outlined a virus relief package of INR1.7tr and may be planning more support.
  • That could push up the government’s fiscal deficit target to as high as 6.2% of gross domestic product in the current year, according to Fitch Solutions, compared with the government’s target of 3.5%.
  • Even before the virus, Asia’s third-largest economy was on track for its weakest expansion in more than a decade of 5% in the fiscal year that just ended.
  • The government had expected to fund its INR30tr spending plan in the new fiscal year from the following sources: INR20tr from taxes, fees and dividends; INR2.1tr from asset sales; and the remaining INR7.8tr from market borrowings.
  • But official data released 31 Mar 20 show it’s falling far behind on its tax targets. Net tax revenue in the 11 months of the last fiscal year was 74.1% of the budgeted estimate, according to figures from the Controller General of Accounts.
  • To meet its full-year target, the government would need to have collected INR3.9tr in taxes in Mar 20. Revenue from asset sales also look unlikely.
  • The government had hoped to raise a record amount by selling national icons such as flag carrier Air India Ltd., refiner Bharat Petroleum Corp. and listing Life Insurance Corp. of India on the stock exchange.
  • It’s now facing record losses in aviation, plunging oil prices, and the worst quarterly drop in local stocks since 1992, making an IPO difficult.
  • The government on 31 Mar 20 kept its borrowing target for the year at INR7.8tr, while proposing to raise 63% of that amount in the first six months of the next fiscal year.
  • “The government is committed to meet its requirements for fighting Covid-19 whether on account of health issues or on account of protecting the economy, and also providing the necessary stimulus at any point of time,” said Economic Affairs Secretary Atanu Chakraborty. “The entire borrowing plan has been designed in that fashion.”

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