Flip side of corporate tax bonanza: Fiscal deficit may rise to 3.7% of GDP

Centre may have to go for spending cuts and off-Budget borrowing

The big-ticket corporation tax relief announced by Finance Minister Nirmala Sitharaman is likely to severely derail the government’s fiscal consolidation plan, and reverse the fiscal balance achieved over the past three years.

Though the stimulus has the potential to boost investments in the medium term, the immediate revenue loss could worsen the Centre’s fiscal deficit, from the budgeted 3.3 per cent of gross domestic product (GDP) to 3.7 per cent of GDP — a massive 40-basis-point increase. It was stabilised at 3.4 per cent since 2016-17. 

An optimistic estimate of revenue shortfall of Rs 1 trillion in the income tax