The government is estimating a fiscal deficit of 3.3% of GDP in financial year 2019-20, lower than the 3.4% estimated earlier in the interim Budget presented in February.
The main reason for this is an increase on the revenue side, while expenditure is being controlled, Finance Secretary Subhash Chandra Garg said. Ratings agencies and tax analysts say there is a risk of missing the 3.3% target if tax revenue falls short of the target.
“This [the fiscal deficit target] has been very carefully considered,” Mr. Garg said at a press conference following the presentation of the Budget by Finance Minister Nirmala Sitharaman. “On the revenue side, as compared to the actuals of 2018-19, direct taxes have been budgeted to increase only by 17.5% as against 23-24% earlier.”
“Indirect taxes are going up by only 15%,” Mr Garg added. “This brings realism to it. It also includes the effect of the excise duties and the income tax measures, so this is very realistic. There is also an increase in the non-tax side as we are expecting more dividends.”
On the expenditure side, he said, the amount budgeted is more or less the same as in the interim Budget. “All of this put together gives us a saving of about ₹6,000 crore as compared to the interim budget,” he said. “That brings down the fiscal deficit to 3.3% from 3.4%.”
“The government is aiming to lower the Central government deficit to 3.3% of GDP in fiscal 2020 from 3.4% in fiscal 2019,” Gene Fang, Associate Managing Director, Sovereign Risk Group, Moody’s Investors Service, said in a note. “To achieve this goal, it is relying on one-off disinvestment income, as well as higher taxes on the rich, and increased excise duties on petrol, diesel, precious metals and tobacco products.”
“There’s a risk that India could miss its deficit target… if income from tax revenue underperforms, as it did last year,” Mr. Fang added.
The government has budgeted a higher disinvestment target for 2019-20 of ₹1.05 lakh crore, compared to the ₹80,000 crore budgeted in the previous year. Apart from this, Mr. Garg said, the government had budgeted a dividend from the Reserve Bank of India amounting to about ₹90,000 crore.
Reduction in collections
The data presented in the Economic Survey released on Thursday shows that there is a risk of tax revenue falling well short of expectations if the trend in 2018-19 is maintained. While the government predicted a total revenue of ₹17.2 lakh crore in its revised estimates for 2018-19, the data in the Survey showed this was actually ₹1.6 lakh crore lower. The bulk of this reduction in collections was due to tax receipts falling well short of the mark.
Notably, the government has cut the allocations for several major schemes. Most significant of these is the ₹4,334 crore cut for the Swachh Bharat scheme.