HYDERABAD: Slower than anticipated GDP growth raises concerns about fiscal deficit breach yet again, even as tax and non-tax revenue continue to disappoint. Last month’s interim budget had set fiscal deficit for FY19 at 3.4 per cent, though the government took comfort in the fact that the actual numbers will print lower. In January, the Central Statistics Office (CSO) revised GDP data upwards, but the Finance Ministry used the previous estimate to calculate deficit.
Going by the revised numbers, deficit was likely to print around 3.2 per cent, which is lower than the set target of 3.3 per cent. Moreover, tax revenue, particularly GST, was giving mixed signals and officials, who had already cut down spending, hoped deficit can be reined in as revenue fares better. But all such hopes were punctured on Thursday as the CSO estimated that GDP for FY19 will grow at 7 per cent against its previous estimate of 7.2 per cent.
Provided revenue plays catch up and deficit remains at the anticipated Rs 6 lakh crore, fiscal deficit will probably settle at 3.32 per cent and not upset the economic applecart.
Trouble is, deficit has already touched Rs 7.71 lakh crore, and unless Centre finds more revenue, deficit woes may continue. Similarly, for FY20, though the upward revision of GDP estimates indicates fiscal deficit will be lower than the targeted 3.4 per cent, a lot depends on the revenue run-rate.
Devendra Pant, chief economist of India Ratings, said the latest data will help achieve fiscal deficit target, but raised concerns about the growth in nominal GDP (adjusted for inflation). On Thursday, the CSO pegged nominal GDP growth of 11.5 per cent during FY20. “With real GDP growth (adjusted for inflation) and inflation being low, achieving 11.5 per cent nominal growth will be tough,” he said.