According to the data released by the Controller General of Accounts (CGA), fiscal deficit during April-August was at 109.3% of the annual target estimated in the Budget. In absolute terms, the fiscal deficit was at Rs8,70,347cr. It stood at 78.7% of Budget Estimates (BE) in the corresponding period during the last fiscal year.
Aditi Nayar, Principal economist, ICRA Ltd on Fiscal Deficit said that “on a YTD basis, the contraction in revenue receipts remained uncomfortably deep at 38.6% in April-August 2020, whereas the growth in revenue expenditure stood at a moderate 7.1%, and capital spending slipped into a yoy de-growth of 1.3%.
In the month of August 2020, revenue and capital spending recorded a double-digit contraction, which may reflect the impact of the expenditure management measures that had previously been put in place. Given the exceptionally volatile monthly trend in revenue and capital expenditure so far, savings related to the spending restrictions imposed on various ministries and departments, which have been recently extended to Q3 FY2021, remain difficult to quantify.
On a monthly basis, the gross tax revenues of the GoI recorded a YoY rise, albeit subdued, for the first time in this fiscal year in August 2020, benefiting from higher excise collections as well as the favourable base related to the settlement of IGST in the year-ago period. The narrowing pace of contraction of customs duty in August 2020 is likely to reflect the surge in gold imports in that month.
Overall, the gross tax revenues remained a considerable 24% below the collections in April-August 2020, reflecting the prolonged impact of the pandemic.
Going forward, we expect the pace of contraction in corporate tax collections to narrow to an extent in the coming months, given the impact of the base related to the change in corporate tax rates in mid-FY2020.
We project the GoI’s net tax revenues, non-tax revenues and disinvestment proceeds to together fall short of the FY2021 Budget Estimate by an alarming Rs. 6 trillion. However, expenditure would be augmented by the fiscal support announced by the GoI under the “Aatma Nirbhar Bharat Abhiyan”, as well as the cash outgo for other items included in the First Supplementary Demand for Grants.
Our baseline estimate is that the GoI’s fiscal deficit will spike to Rs14 trillion in FY2021 from the budgeted Rs8 trillion. This exceeds the extent by which the Centre’s gross market borrowings have already been augmented (Rs4.2 trillion), as well as the additional funds raised through the exercise of green shoe options (Rs0.7 trillion). Accordingly, a further expansion in the GoI’s borrowing calendar for H2 FY2021 of at least Rs1.1 trillion above the current estimate of Rs5 trillion is inevitable, even if no further fiscal support measures are announced, Aditi Nayar added.