Government banks on non-tax revenue bump to meet fiscal target

As the government stares down the proverbial barrel for 2017-18 - having exceeded the revised fiscal deficit target by more than Rs 1 trillion – it needs to see a big bump in non-tax revenues in the month of March to meet its targets.

The non-tax revenues, including dividend from public sector enterprises, will to a large extent determine whether the government will be able to rein in its fiscal deficit at a revised 3.5 per cent of gross domestic product (GDP) without much expenditure squeeze.

Even as the Centre’s fiscal deficit overshot the Revised Estimates (RE) by 20.3 per cent, the government said it is on track to meet the target.

“Fiscal deficit numbers released on Wednesday indicated end-February position. We now have flash numbers until March 28. We are very close to the RE estimates for both fiscal deficit and revenue deficit. Quite confident that fiscal deficit will be within 3.5 per cent of GDP,” Economic Affairs Secretary Subhash Chandra Garg tweeted on Thursday morning.

Finance Secretary Hasmukh Adhia had also said that the finance ministry on Wednesday reviewed the fiscal position for the financial year. “We are meeting the fiscal deficit target. We are very optimistic. Today, we reviewed the position. We shall meet the target,” Adhia had told reporters on Wednesday.

A senior government official told Business Standard that some of the ministries had returned unspent money in capital expenditure allocations. The finance ministry is said to have cut the rail ministry’s gross budgetary support by Rs 150 billion.

Additionally, sources indicated that the Reserve Bank of India (RBI) is on track to pay the extra surplus amount that the government has been asking for. The RBI gave only Rs 306 billion to the government, against Rs 413 billion that the latter had sought. It will give at least Rs 100 billion more, officials said.

The government will have to have a fiscal surplus of Rs 1.2 trillion in March to contain fiscal deficit at Rs 5.9 trillion, or 3.5 per cent of GDP, for FY18.

Aditi Nayar, principal economist with Icra, said a fiscal slippage could be averted if revenue receipts are robust in March or expenditure is curtailed. Of this, the goods and services tax collections have already come in at Rs 851.7 billion till March 26 for the month of February. Of this, some amount would have come in February itself and may be accounted in the fiscal deficit figures released on Wednesday.

On direct taxes, Devendra Pant, chief economist at India Ratings, said the government had collected over Rs 2.16 trillion in March last year.

As such, direct taxes are expected to be buoyant in March this year as well, even though there is no black money kind of scheme this year.

Disinvestment has already yielded Rs 1 trillion now. Till February, disinvestment, including from strategic sales, was Rs 924.9 billion. So, roughly about Rs 75 billion came from disinvestment for the month of March. Apart from the two initial public offerings and a few buybacks in March, the Centre is now counting Rs 14 billion from its existing investment in Axis Bank, Larsen & Toubro, and ITC, as part of the disinvestment proceeds.

This leaves one with non-tax revenues. The government has got just Rs 1.4 trillion on this account till February out of Rs 2.3 trillion it has pegged in the RE.

Non-tax revenues include dividend from public sector units (PSUs), transfer of surplus from the RBI and telecom revenues, including spectrum fee.

The government has already cut projections of revenues from the telecom sector to Rs 307 billion in RE, against Rs 443 billion in the Budget Estimates (BE) since there was no auction. Also, licence fee and spectrum charges declined due to drop in revenue of operators.

All eyes are on dividend from PSUs, which have also been cut to Rs 548 billion in the RE, from Rs 675 billion in the BE.

Pant said non-tax revenues are key to avert fiscal slippage or else expenditure will have to be curtailed.

In fact, according to Nayar total expenditure needs to contract by 2 per cent on yearly basis to meet the figures given in the RE.

While capital expenditure has already exceeded the RE by almost 9 per cent, revenue expenditure is still 12.5 per cent short of the RE.