The latest data from the Controller General of Accounts (CGA) shows that there has been an early breach in the fiscal deficit target for the financial year. By November-end, the deficit had hit 112 per cent of the budget estimate for FY2018. With proposed additional borrowing of Rs 50,000 crore, the deficit is likely to rise from the estimated 3.2 per cent of the GDP to 3.88 per cent. For the same period of April-November last year, the deficit stood at 85.8 percent of the budget estimate.
The finance minister has tried to allay fears asserting there will be no change in its budget estimates for borrowing as the additional borrowing of long-term securities will be accompanied by similar reduction in outstanding Treasury Bills (T-bills).
All deficit budgets are bad, because the government is spending more than it is earning. That said, as budget deficits go, the deficit creeping up to 3.9 per cent is not earthshaking considering the country averaged an annual deficit of 3.86 per cent between 1991 and 2016, and we had years like FY2009 which notched up a deficit of 7.8 per cent.
However, there is need to worry as financial planning has gone askew. The CGA data shows expenditure is on track with spending just short of 69 per cent of budget provisions with four months still left in the financial year. However, it is revenue collection that has slipped. The GST collections for November, which declined to Rs 80,808 crore (as of 25 December 2017), are the lowest since the July 1 implementation of the new tax regime.
This means with the bulk of the government expenditure having been front-loaded in the first half of the year, spending will have to be sharply curtailed in the last four months. This could mean stagnation in investments and economic growth. There is a chance that Moody’s, which recently upgraded India’s sovereign rating, can also do a downgrade in the face of these fiscal slippages. This won’t be good news for a government committed to financial reform and speeding up investment.