Fiscal deficit under revised target due to cut in non-essential expenditure

As the 2019 fiscal nears its end, the Finance Ministry's fiscal managers say the revised deficit target of 3.4 per cent is under control even as the government is braving to bear shortfalls in both direct and indirect taxes by lowering 'non essential' expenditures. Sources in the Ministry said that any shortfall in revenues is being met by cutting non-essential expenditure, suggesting that despite the forthcoming elections, the government will not slip on its fiscal commitment. 

For the fiscal, the disinvestment proceeds exceeded the target at Rs 85,000 crore with successful completion of IPOs, share buybacks, offer for sale as well as ETFs. The final tax figures, both direct and indirect, are yet to come. "The fiscal deficit target of 3.4 per cent of GDP will be met... Any additional outgo on account of subsidies, be it food, oil or fertiliser and extra payout, will be met through budgetary resources and there may be some pushover to the next fiscal but these are not major," the sources said. 

The yields on the benchmark 10-year bond is still tracking at 7.4 per cent, indicating the market also sees fiscal control. The sources added that the Finance Ministry had asked the financial advisors of various ministries to stick to their budgeted expenditures estimates and not seek any additional allocation. Subsequently, North Block had advised a cut in non-essential non-plan expenditure for all ministries and departments. 

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The government may just meet the revised fiscal deficit target set at 3.4 per cent of the gross domestic product (GDP) for the current financial year (FY2018-19), they said. "There may be a shortfall of about Rs 40,000 crore in indirect tax collections, mainly on account of GST, while direct tax collection may also fall short by around Rs 70,000 crore," a source said. 

The government's mop-up target for direct tax collection during the current fiscal as per the revised estimate is pegged at Rs 12 lakh crore. On the other hand, the indirect tax collection target for the current fiscal was revised to Rs 11.47 lakh crore from Rs 13.71 lakh crore budgeted initially.

"Fiscal deficit target would be met as a shortfall in indirect tax collection would be compensated by lower government expenditure," said Finance Secretary Subhash Chandra Garg, who is also the Secretary of Department of Economic Affairs.

The budgeted fiscal deficit target was 3.3 per cent of GDP at the beginning of 2018-19 and was later revised to 3.4 per cent of GDP while preparing the interim budget, mainly because of an expectation of higher payout on basis of the direct income scheme for farmers.

The fiscal deficit at the end of January stood at Rs 7.7 lakh crore, or 121 per cent of the revised estimate of Rs 6.3 lakh crore as total expenditure overshot revenue receipts, according to from the comptroller general of accounts. In the H2 of current fiscal, the government had cut borrowings by Rs 70,000 crore.