Shadow on fiscal health, but tougher test next year

    Finance minister Nirmala Sitharaman made use of an amendment to the Fiscal Responsibility and Budget Management Act, passed two years ago, to overshoot her targeted fiscal deficit of 3.3 % of GDP for 2019-20 by half a percentage point. The next financial year is expected to see a reduction in the fiscal deficit to 3.5% from the current year’s 3.8%.

    A combination of a midyear reduction in corporate tax rate and lacklustre GST collections on the heels of a slowdown in economic momentum resulted in government overshooting its fiscal deficit target. The next financial year is also likely to be challenging.

    The Budget has been built on a foundation of 10% growth of nominal GDP to Rs 224.89 lakh crore in 2020-21. Gross tax collections, however, are expected to grow by 12%. But the salient feature on the receipts side is the disinvestment target of Rs 2.10 lakh crore, a jump of 223%.

    The key disinvestment exercise is likely to be that of Life Insurance Corporation. A Budget document expects stake sale proceeds from PSU banks and financial institutions to be Rs 90,000 crore. This sale will more than offset the expected fall in the surplus transferred by Reserve Bank of India.

    Public sector companies are integral to overall Budget architecture as they now provide the bulk of government’s capital expenditure. In 2020-21, about 62% of the planned capital expenditure of Rs 10.84 lakh crore is slated to come from public sector resources and borrowings.

    The Budget for 2020-21 will raise resources of about 0.8% of GDP over and above the fiscal deficit through extra budgetary resources, where government will service the loan. The single largest loan under this route will be Rs 1.36 lakh crore raised by Food Corporation of India through National Small Saving Fund. This is not a one-off and the extent of borrowing through this method is expected to increase to 0.9% of GDP over the next two years.

    For all practical purposes, the de facto fiscal deficit is well over 4% if borrowing through alternate channels is taken into account, giving a sense of the fiscal stress.

    Source- Times of India.

The post Shadow on fiscal health, but tougher test next year appeared first on GST Station.



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