Advance GDP estimate at 7.2% gives little relief to fiscal deficit pressure

Struggling to meet the fiscal deficit target at 3.3 per cent of the gross domestic product (GDP) in 2018-19, the Union government might get only a partial relief from the new national accounts number released on Monday. 

The relief is worth around Rs 40 billion. This is so because the Budget had assumed the size of the economy to grow to Rs 187 trillion in FY19 where as it is now estimated to increase to Rs 188 trillion. Fiscal deficit at 3.3 per cent of GDP now comes at Rs 6.28 trillion compared to what was projected at Rs 6.24 trillion in the Budget Estimates (BE). 

However, the relief might turn out to be miniscule for the government since fiscal deficit has already stood at Rs 7.17 trillion by November, breaching the BE by almost 15 per cent. 

As such, the government needed a fiscal surplus of Rs 93,000 crore in the next four months (December-March, 2018-19) earlier, now it needs Rs 89,000 crore. 

With goods and services tax (GST) collections slowing down, compared to the target rate of Rs 1 trillion a month and other sources of revenues also not rising for the occasion, the government might have to cut expenditure or roll it over to the next year, particularly the revenue expenditure such as subsidies. 

GST collections have hit the Rs 1-trillion mark only twice till December in the current financial year. The rate cuts announced in December may further hit collections, unless compliance increases significantly. Generally, GST collections shore up for March due to arrears paid for the earlier months. But for the government kitty, that number will come only in April because of cash accounting method. 

And even a lower fiscal deficit target, in absolute terms, will still be challenging to meet. The Centre has promised to meet the target in spite of committing to no let-up in capital expenditure in a pre-election year. Apart from GST, there are concerns on direct taxes as well. 

Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra has cautioned officials about the direct tax collection growth rate, and said it can adversely affect the BE of Rs 11.5 trillion for the current financial year. 

On expenditure, the finance ministry is counting on carrying forward some pending subsidy payments to the next fiscal year, converting some expenditure allocations into ways and means advances, and hoping for some savings on administrative and revenue expenditure. 

And, data available for April-October shows that the pace of revenue expenditure for most social sector ministries and some infrastructure ministries has indeed slowed down, when compared to the same period last year. 

Successive governments have resorted to time-tested methods of rolling over additional subsidy burden, taking back unspent amounts from ministries, converting certain expenditure entries to ways and means advance, and running down the cash reserves. As reported earlier, if these steps are not taken, the Centre could see additional expenditure of at least Rs 45,000 crore this year, over and above the budgeted spending estimates of Rs 24.4 trillion.