The revised estimates provided in the interim Budget peg the fiscal deficit for 2018-19 at 3.4 per cent of gross domestic product (GDP) as against the budgeted target of 3.3 per cent. But, a closer look at the numbers suggests that even the revised target might be an optimistic estimation.
The government, however, says the fiscal deficit target has been rounded off, which exaggerates the figures. In fact, the deficit has been budgeted at 3.34 per cent of the country's GDP for 2018-19 in the Budget Estimate (BE), which has now been revised up to 3.36 per cent, economic affairs secretary Subhash Garg said. This means the deficit figure has gone up by Rs 10,122 crore only in absolute terms.
However, the slippage can be higher as the government may have overestimated its tax and disinvestment revenues, held back a part of the goods and services tax (GST) compensation cess to spruce up its balance sheet and put some of its expenses off it.
A greater-than-expected slippage can raise questions over the fiscal arithmetic for 2019-20.
The first evidence of this in the Budget emerges from a deeper look at the tax revenue the government estimates it will be able to collect by the end of the current fiscal year.
Optimistic GST collections
The interim Budget pegs collections from Central Goods and Services Tax (CGST) for the full year at Rs 5.04 trillion. This is already Rs 1 trillion lower than what the Centre had budgeted at the beginning of the year. But, even this revised CGST estimate is likely to be too high to achieve.
Data from the Controller General of Accounts (CGA) shows that in April-November fiscal year, the Centre collected Rs 2.97 trillion at an average of Rs 37,160 crore per month. This includes CGST earned directly as well as that settled from the integrated goods and services tax (IGST).
To this, Rs 2.97 trillion for April-November, one can add two month’s collections of CGST and the apportioned IGST for December and January. The figures for these two months are obtained from government press releases. This brings the total CGST collected by the Union government for April-January to Rs 3.77 trillion and an average collection of Rs 37,635 crore a month.
If one goes by the revised estimate for CGST collections presented in the Budget, the Centre would have to shore up an additional Rs 1.27 trillion in just two months. Achieving this monthly target of Rs 63,500 crore would require a whopping 69 per cent increase in the collections over the 10-month average so far.
A note on the Budget from analysts at ICICI securities corroborates this. It states, “We believe that the assumed gross revenue slippage for GST collections in FY19 — assumed to be Rs 1 trillion, or 0.5 per cent of the GDP — would still prove optimistic, with another 0.25 per cent of the GDP slippage likely. This slippage would mean that the FY20 growth in GST revenues would need to be about 29 per cent for hitting the budgeted targets.”
Others concur. “For GST, despite the reduced estimates, the target appears optimistic (60 per cent of the revised estimates achieved till Nov 18). How much IGST has the Centre kept and how much it is going to allocate to states will only be clear after March,” notes a report from Soumya Kanti Ghosh, group chief economic advisor, State Bank of India.
Additionally, in its 2018-19 interim Budget, the government had targeted to collect Rs 90,000 crore as compensation cess. But in the interim Budget, it has projected to pass on to states only Rs 51,735 crore by the end of this fiscal, implying it will hold on to the balance of Rs 38,265 crore for the year. The GST Compensation to States Act, 2017 was amended to let the Centre appropriate half the unutilised cess at the end of each year. But how that would square off after state GST revenues are finally assessed and compensations paid, remains unclear.
Corporation tax conundrum
Data from CGA shows that by November this year, the government had collected Rs 2.91 trillion, up 16.6 per cent from Rs 2.49 trillion last year. This means that, to meet its target for corporate tax, the government would need to collect an additional Rs 3.8 trillion in just four months.
Last three years’ data with CGA shows that owing to the corporate tax collection cycle, the government does achieve a substantial portion of its target in the last four months of a financial year. The corporate tax collected in last four months of the fiscal has ranged between 48.50-56.26 per cent of the yearly target.
Bloat from disinvestment
The story of optimism repeats itself on the disinvestment front. So far (by January 2019), the government had earned Rs 35,533 crore via disinvestment. But according to the interim Budget, the government is confident of meeting the Rs 80,000 crore by the end of March. In other words, it expects disinvestment proceeds worth Rs 44,467 crore in merely the last two months of this financial year.
Devendra Pant, chief economist at Ind-Ra, notes that the Rs 80,000-crore target was pegged keeping in mind plans to disinvest in Air India.
However, the stake sale did not find buyers. And while the PFC-REC stake sale will give the government an additional Rs 15,000 crore, it is unlikely that share buybacks and stake sales can bridge the gap in the next two months, he assesses.
The revised numbers for 2018-19 also tend to show some careful accounting management on the expenditure side to keep the fiscal deficit in check.