Fiscal deficit breaches budget target in just four months, outlook gloomy
NEW DELHI: India’s fiscal deficit has breached the full-year target set in the Budget in the month of July itself. Data released on Monday showed that this figure stood at Rs 8.21 lakh crore at the end of July, or 103 per cent of the budget estimate for the whole year.
Fiscal deficit is the difference between a country’s income (such as tax revenues ) and expenditure. Post-pandemic, the government’s revenue has plunged, even as expenditure has soared.The Union Budget, announced before the Covid-19 utbreak, had pegged the fiscal deficit for FY21 at Rs 7.96 lakh crore—3.5 per cent of GDP (Gross Domestic Product).
But, the government’s direct tax collections up to this period stand at just Rs 1.49 lakh crore compared to Rs 2.21 lakh crore last year. Income tax collection stood at Rs 91,244 crore against Rs 1.28 lakh crore. Corporate tax collection saw a steep decline of 39 per cent at Rs 53,724 crore. So, while total receipts for the first quarter stood at Rs 2.32 lakh crore, expenditure was Rs 10.54 lakh crore, 34.7 per cent of budget estimates.
Economists say a double-digit rise in expenditure amidst the ongoing revenue shock will reinforce challenges posed to fiscal management. According to Aditi Nair, Chief Economist ICRA, “The economic uncertainty... will dampen direct tax collections.., though the pace of contraction would ease in subsequent months”.
With the Centre admitting to a GST collection shortfall of Rs 3 lakh crore, and planning additional borrowing to plug that hole, the outlook is not too rosy. The IMF has already predicted that deficit for this year will touch 7 per cent of GDP. It already recorded a seven-year high of 4.6 per cent in the previous fiscal.
And the fallout is visible. The Centre has announced expenditure cuts; subsidy payouts are lower, as is spending on the social sector. Despite subsidised food distribution, food subsidy was 49 per cent of the budget against 59 per cent last year.