In a recent media interaction, the Finance Minister reiterated that despite the recent cuts in corporate tax, the government is neither going to deviate from the path of fiscal prudence nor is it going to cut expenditures. The minister may be confident, but the fiscal math and economic realities of the day seem to suggest the contrary. The corporate tax cuts could have a net impact of 0.4-0.5 per cent of GDP (after reducing the state burden) on the fiscal deficit target.
There are already murmurs in the finance ministry corridors about tax collection falling short to the tune of Rs 1.5-2 lakh crore. This could get worse given the slowdown in the economy in the first half of the year. Amidst all this, the only way the government can still manage to stick to fiscal deficit and expenditure targets is to increase collection from non-tax revenue sources. The additional payment of Rs 58,000 crore from the RBI may not suffice. It needs to double the disinvestment target of Rs 1.05 lakh crore.
There is already buzz that the government may sell off state-owned companies like BPCL, Concor and Shipping Corporation. It remains to be seen if the government manages to keep its finances in order.