Statsguru: A decline in growth poses risks to govt's fiscal forecast

Last week, data released by the government showed a slight improvement in the fiscal position in 2020-21. The fiscal deficit decreased to 9.2 per cent of gross domestic product (GDP) compared to the earlier envisaged target of 9.5 per cent. The improvement came on the back of higher tax earnings (gross tax revenue) in the last two quarters (chart 1).

A closer look at the tax revenue shows that most of the gains accrued from higher customs and excise duty collection. Customs collections witnessed a 20 per cent increase compared to the revised estimates presented by the government in the Budget. Excise revenues increased by 8 per cent, whereas direct taxes grew by only 4 per cent (chart 2).

Income tax collection remained unchanged from 2019-20, while corporate tax declined by 17 per cent. Direct tax collection declined to 4.7 per cent of GDP, while the share of indirect taxes increased to 5.4 per cent. The situation reversed compared to 2011-12 when direct tax collection accounted for 5.6 per cent of GDP (chart 3).

While tax collections provided some reprieve, the government seems to be consistently underperforming on the disinvestment side. The government had set an ambitious target of Rs 2.1 trillion for disinvest­ment, but it only raised Rs 32,885 crore. It plans to raise Rs 1.75 trillion in the current fiscal year (chart 4).

Another area where the government seems to underperform is capital spending. The share of capex declined from 14.5 per cent of total expenditure in FY17 to 12.1 per cent in FY21 (chart 5).

With the second wave affecting economic activity, the government faces an uphill task of maintaining the fiscal deficit target of 6.8 per cent of GDP. A decline in growth, coupled with more spending on health and subsidies, poses risks to the government's fiscal forecast (chart 6).

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines