The government has estimated the fiscal deficit for the financial year 2019-20 to be 3.3 per cent from 3.4 per cent announced in the Interim Budget in February. While the lower fiscal deficit target may come as a surprise given it had to resort to fiscal jugglery to arrive at the target of 3.4 per cent in the Interim Budget, there seems to be a twist in new numbers as well.
Data used in the Interim Budget was based on revised estimates (mid-year review of the numbers), while the full-year Budget is based on advance estimates, which tend to be closer to real figures. This explains the diversion between the two numbers.
A footnote in this year's Budget document mentions that "GDP for BE 2019-2020 has been projected at Rs 211 lakh crore in 2019-20 assuming a 12 per cent growth over the estimated GDP of Rs 188 lakh crore for 2018-2019". Hence, instead of basing figures on advance estimates, the government has collated data according to revised estimates. That said, the GDP growth, in fact, has been overestimated, which has created a faulty reference point, while calculating the fiscal deficit, hence indicating a fall in it.
This fall, therefore, should not be seen as an improvement. Sunil Kumar Sinha, economist, India Ratings explains: "This simply means that the actual fiscal deficit has not come down, it is just the base, it is fluctuating and hence the figure stands at 3.3 per cent." He also highlights the discrepancy within budget documents in relation to the nominal growth rate of gross domestic product (GDP) with some claiming that it is 12 per cent and others saying it is 11 per cent.
The full-year budget shows a lower fiscal deficit number (than the interim one) despite the fact that estimates of revenue receipts for the current year have been revised downward at Rs 19.63 lakh crore against Rs 19.78 lakh crore estimated in the Interim Budget. What is more intriguing is that while revenue receipts have been revised downward, the expenditure budget in the July Budget is Rs 2,000 crore higher than that in Interim Budget.
To meet the revenue goal, the disinvestment target has been increased to Rs 1.05 lakh crore from Rs 90,000 crore estimated in the Interim Budget. The growth in direct taxes that has been higher than estimates could also provide a cushion. However, GST revenues have not been meeting targets. It fell below Rs 1 lakh crore for the month of June, 2019.
Although the government will generate higher revenues from the surcharge on individuals with taxable income, it will also lose revenues due to changes in the corporate tax structure.
Notably, there was a shortfall of Rs 1.6 lakh crore in revenue receipts in FY 2018-19, yet the government had managed to meet the fiscal deficit target.
"The government was able to do so because they collected more revenues from disinvestment, compressing the expenditure during the year. In a few cases, they rolled over the expenditure from FY19 to FY20.
For instance, they did not pay the total amount on fertiliser subsidy that was budgeted; a part of it has been held over to 2021," says Sinha.
"If the tax collection shortfall happens and the government wishes to maintain the fiscal deficit, it will have to do something similar again to bring the expenditure in line with the revenue collection unless it receives money from the Reserve Bank of India or dividends from public sector banks," he adds.
If indeed the government wishes to stand by its poll promises, compressing expenditure any further will not be feasible. How the government prevents a revenue slippage in FY20 will be keenly watched.