Government May Reduce Expenses; 65% of Total Target Spent by November

As a measure to lift the economy, the government has been considering the idea of reducing the expenses for the current fiscal year by an amount of Rs.2 lakh crore, i.e. USD 27.82 billion. The major cause for this consideration is the shortfall in tax collection in recent years. 

Despite being the world’s third-largest economy, the country has been the slowest in economic growth over the past six years. Since private investments have been lacking recently, the government is planning to cut on spending.

The revenue shortfall of the country stands at Rs.2.5 lakh crore. Considering this fact, it is said that the government cannot make a choice to keep the deficit within acceptable limits.

Looking back at the expenses done, the government has spent about 65% of the total expenditure target of Rs.27.86 lakh crore by the month of November. It is observed that the pace of spending was reduced in October and November.

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The reduction amounts to Rs.2 lakh crore, i.e. a 7% cut in the total spending as planned for the year. In addition, the expenditure done in October and November increased by Rs.3.1 lakh crore as compared to the expenditure done in September.

A major reason for the decline in tax collections this year is the lack of demand and weak corporate earnings. The corporate tax rate cut failed to attract private investment. As a result of the slowdown in private investments, economic growth will be further hurt.

It is to be noted that the country’s economic growth has slowed down for six consecutive quarters, dropping to 4.5% in the July-September quarter. The 135 basis point rate cut declared by the Reserve Bank of India announced in February showed the least hike in economic growth.

The government is probable to keep the fiscal deficit within 3.8% of the gross domestic product (GDP), changing from the target set earlier at 3.3%. The government may announce an additional borrowing of Rs.3,000 crore to Rs.5,000 crore for the current year in order to match the latest fiscal deficit.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in