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Budget 2020: Govt may cut budgeted expenditure amid parlous fiscal position

In the last quarter of the financial year, the government departments have been asked to cut one-fourth of their annual revenue expenditure. That's because almost every earning-side indicator is showing a shortfall over budget estimate

Dipu Rai | January 21, 2020 | Updated 21:38 IST
Budget 2020: Govt may cut budgeted expenditure amid parlous fiscal position

Government departments are set to feel the heat of economic slowdown with the Finance Ministry possibly cutting Rs 2.2 lakh crore in total expenditure from its budgeted estimates. Government is staring at a shortfall of Rs 3.48 lakh crore in direct and indirect taxes. A massive revenue shortage of Rs 1.45 lakh crore has also added to the revenue pressure, provisional data and estimate suggest.

In the last quarter of the financial year, the government departments have been asked to cut one-fourth of their annual revenue expenditure. That's because almost every earning-side indicator is showing a shortfall over budget estimate.

India's economy is set to grow at 5 per cent this financial year - slowest pace in 11 years. This sharp slowdown has hit every aspect of the economy including the revenue side of government's finances. "The Government has estimated that the total revenue foregone for the reduction in corporate tax rate and other relief estimated at Rs 1.45 lakh crore. The slowdown in the economy will further reduce the corporate tax collection, thereby leading to a shortfall in corporation tax of around Rs 2 lakh crore. The personal income tax also will have a shortfall to the tune of Rs 0.88 lakh crore," said Somya Kanti Ghosh, chief economic adviser of SBI in its latest research note.

GST collection is also sluggish and "it is expected that around Rs 85,000 crore will be the overall revenue loss to the Centre", Ghose further added.

The lower revenue collection may push the government to take additional loans. In September, the government announced it would borrow Rs 2.68 lakh crore from the bond market in the first half of FY2020. According to the budget estimate of the financial year 2020, the full-year gross borrowing target is at Rs 7.1 lakh crore.

After an 11 per cent drop in tax target in the financial year 2019, the government has initiated a cut in spending in FY20 as well. Also, a significant part of the expenditure has been financed by off-budgeting route in order to control fiscal deficit. These include loans taken by Food Corporation, NHAI, Power Finance Corporation and even oil firms such as ONGC.

The practice of off-budgeting proves that public finance is not enough to finance government spending. The subdued economic growth and lower revenue have created immense pressure on fiscal deficit target, which has led to more extensive off-budgeting route in Budget 2020.

@DipuJourno

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