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Govt blames GST 'accounting' for fiscal slippage; economists believe otherwise

The government is likely to breach the fiscal deficit target this year by 300 basis points (bps), from 3.2% to 3.5% of the GDP, clearly going off the fiscal deficit roadmap as laid down by it earlier.

twitter-logo Dipak Mondal   New Delhi     Last Updated: February 12, 2018  | 19:37 IST
Govt blames GST 'accounting' for fiscal slippage; economists believe otherwise

The government is likely to breach the fiscal deficit target this year by 300 basis points (bps), from 3.2% to 3.5% of the GDP, clearly going off the fiscal deficit roadmap as laid down by it earlier. One of the reasons that the finance minister and the bureaucrats in the ministry have been citing for this slippage is the fact that they have accounted for only 11-month of GST against 12-month of expenses.

Explaining this, finance minister Arun Jaitley recently said in an event at industry association FICCI: "In the old regime, you would get paid the tax in same month the liability is accrued, but in GST you get paid only by 20th of the next month. So in the current fiscal, the March GST would only come in April. Therefore, we have accounted only for 11-month of GST."

He further says, "So when people talk about the so-called fiscal slippage, they conveniently overlook that it is 12 months of expenses and only 11 months of GST. So, to stick to the fiscal target with a one-month revenue is very difficult." The minister adds that if we account for the Rs 36,000 crore additional revenue from one month of GST, it would cover a significant portion of the 300 bps slippage.

How valid is this argument? Is it really on the tax revenue front that the government has fallen by the wayside as far as fiscal deficit is concerned? Economists believe otherwise. Pronab Sen, an economist and former chief statistician of India, explains: "Government accounts are prepared on cash basis, which means an income is recorded only when the money has been received or a expense is recorded when payment has been made. This is different from accrual basis of accounting under which a expense is recorded the moment expense happens."

So, according to him, whatever (tax) revenue gap the finance minister is talking about is actually the difference between the first months' collection in the current financial year and the next financial year.

Sunil Kumar Sinha, principal economist, India Ratings, however, rejects the explanation of the government outright. "If you look at the revised estimate for indirect tax collection for the current year, it is (1 percentage point) more than what they had budgeted for. So, it is not on the tax revenue side that the government has slipped," he says. He, instead, blames the government's inability to raise enough money from non-tax revenue sources and keep the expenses at check for the slippage in the fiscal deficit target.

The government had in the last budget made a total tax revenue estimate of Rs 19.11 lakh crore for 2017/18 against which the revised estimate is Rs 19.46 lakh crore, an increase of almost 2% from the budgeted estimate. For indirect tax, the budget estimate for the current financial year was Rs 9.27 lakh crore against which the revised estimate is Rs 9.36 lakh crore.

The budget estimate is the first estimate for tax collection figures made in the budget papers for the following year, while this estimate may change during the financial year due to higher or lower collection and hence a new estimate -- revised estimate -- is given in the budget paper of the next financial year.

The government has budgeted for non-tax revenue of Rs 2.89 lakh crore for the current financial year, which they have now revised to Rs 2.36 lakh crore, a sharp drop of Rs 53,000 crore or 18%. Till December 2017, the total non-tax revenue collection was only Rs 1.13 lakh crore which is 39% of the budget estimate. If the trend continues like this, the actual non-tax revenue collection may be less than the revised estimate.

Even on the expenditure side, the government has failed to keep the spending on check. Against the budget estimate of a revenue deficit of (Rs 3.2 lakh crore) 1.9%, the revised estimate is way higher at (4.4 lakh crore) 2.6%. Revenue deficit occurs when expenditure is more than revenue receipt.

Rathin Roy, director of National Institute of Public Finance and Planning (NIPFP) and a member of economic advisory committee of the prime minister (EAC-PM), though says one month's less GST collection is certainly one of the reasons for such sharp breach in fiscal deficit target, he feels it is not only the finance ministry's job to maintain the fiscal deficit target, other stake holders must also contribute.

He was talking about the low non-tax revenue collection, which include dividend and profits from PSUs, RBI and LIC. "RBI is sitting on huge cash, and they could have paid higher dividends," he says. Roy also admits that high pension outgo has also increased government's revenue expenditures making it difficult for the government to stick to the fiscal deficit target.

 

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