Fiscal deficit touches 87% of BE in Apr-Nov

Despite robust capital spending by the government to boost growth, Centre's fiscal deficit narrowed in the April-November period compared to the previous year, led by encouraging tax and non-tax collections.

The fiscal deficit for the first eight months of FY16 stood at Rs 4.83 lakh crore, or 87 per cent of the full-year target of Rs 5.56 lakh crore, much lower than 98.9 per cent seen in the corresponding period last year, data released by the ministry of finance showed on Friday.

"Notwithstanding the tepid accretion of direct taxes in November 2015, the revenue and fiscal deficits of the Union government remain considerably lower than the levels in April-November 2014. Moreover, the continued healthy pace of growth of capital expenditure is encouraging," said Aditi Nayar, senior economist, Icra.

The government's capital spending during the eight months till November accounted for 65.8 per cent of what has been estimated in the Budget for the financial year, much higher than 53.2 per cent seen in the corresponding period last year, suggesting a healthy fiscal deficit.

The government in the mid-year analysis released earlier this month lowered the growth target for the financial year to seven-7.5 per cent as against 7.5-eight per cent estimated earlier. The GDP growth in the first half stood at 7.2 per cent. The fiscal deficit is targeted at 3.9 per cent of the GDP this financial year.

In the current financial year, the finance ministry is expecting an up to five-seven per cent shortfall in tax revenue collection, with a Rs 50,000 crore lower revenue compared to Rs 14.5 lakh crore budgeted for the on account of lower than estimated revenue from direct taxes.

Revenue deficit, considered a bigger worry as it does not result in capital formation, stood at 87.5 per cent of the Budget Estimate till November compared to 108.6 per cent in the corresponding period of the previous financial year.

Riding high on low global oil prices, the government hiked excise duty on petrol and diesel twice in two months. Till October, the additional excise levy on petrol and diesel led to Rs 40,000 crore revenue to the government as against Rs 25,000 crore last year.

"The two rounds of hikes in excise duty on petrol and diesel and the imposition of the Swachh Bharat cess since November 2015, would boost indirect taxes by Rs 10,000 crore in the last five months of this financial year. Based on available trends, we continue to expect higher indirect tax revenues to absorb any shortfall in direct taxes relative to the budget estimate for 2015-16," said Nayar of Icra.

Centre's indirect tax mop up rose 34.3 per cent in the first eight months of 2015-16, led by additional revenue measures such as excise increases on diesel and petrol, withdrawal of exemptions for motor vehicles, capital goods and consumer durables the increase in service tax from 12.36 to 14 per cent. Besides, the government introduced the Swachh Bharat cess of 0.5 per cent with effect from November 15.

The chief economic adviser in the mid-year analysis recommended the government to revisit the fiscal consolidation road map on account of sharp fall in the nominal GDP growth, besides higher estimated expenditure next financial year on account of the 7th Pay Commission and the One Rank One Pension scheme.