Government may meet fiscal targets despite lower tax revenues

Budget 2019 has set the fiscal deficit target at 3.3% of the gross domestic product (GDP). However, due to the recent corporate tax cuts, the fiscal deficit may exceed the government’s target. The corporate tax cuts are estimated to cost the government Rs 90,000 crore. 

The overall GDP growth for FY 2018-19 stood at 6.8%. Analysts estimate a 2% drop in the GDP for FY 2019-20. 

The corporate tax cuts and the decline in the GDP are estimated to bring down the net tax revenues by Rs 2.5 lakh crore for the FY 2019-20. The decline would be the highest ever in the direct tax collections. 

The government missed the fiscal deficit target in FY 2019. In FY 2018-19, the fiscal deficit rose to 3.4% of GDP as against the target of 3.3% of GDP. For the current year, the government is trying to meet the fiscal deficit target through non-tax receipts from the Reserve Bank of India (RBI) and other measures.

Also Read: How GDP Growth Could Be Recovered with Sectoral Solutions

The government has received a sum of Rs 58,000 crore from the RBI upon review of its economic capital framework. The government is also seeking an interim dividend of Rs 30,000 crore from the RBI. Additionally, the government is expecting to collect Rs 80,000 crore as licence fee-SUC dues from telecom companies such as Bharati Airtel and Vodafone Idea. The government is likely to use off-budget financing such as NSSF loans to finance its subsidy obligations partly. 

Hence, the current year fiscal deficit target is unlikely to widen even as budgeted revenues change due to post-budget developments. Also, the government is expected to make a modest cut in the overall expenditure while keeping its capex plans intact.

Some expenditure cuts could be through off-budget financing such as food subsidy dues to Food Corporation of India (FCI) may be converted into NSSF loans. The government may also defer certain payments from the budget similar to the steps taken in the earlier years.

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