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How India’s FY18 Fiscal Deficit Will be less than The Revised Target?

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For a change, India’s fiscal deficit for the fiscal year 2017-18 will be lower than the revised target of Rs.5.95 trillion. This is in contrast to the past experience of overshooting the estimate for one or the other reason. However, this has not come by virtue of any government’s efforts. On the contrary, the current achievement is primarily on account of two factors. The Reserve Bank of India has transferred more surpluses and the Food Corporation of India (FCI) returning unspent money from its allocation.

Reversal of Trend

The latest estimate is in contrast to the Rs.1.2 trillion of increased deficits at the end of February, according to Business Standard. The fiscal deficit was Rs.7.16 trillion for the eleven-month period April – February. This was 120 percent of the revised target for the full year. Aside from that, it was the biggest overshoot for the same period in the recent past. The RBI transferred Rs.100 billion and the FCI returned close to Rs.500 billion from its allocation to the finance ministry.

But for the transfer of money from RBI and returning of money, the government would have faced an uphill task in March to meet the fiscal deficit target. Finance Secretary, Hasmukh Adhia, and Economic Affairs Secretary, Subhash Garg, made the announcement of the government meeting the revised fiscal deficit estimate. However, they have not offered any numbers for March except details on the direct tax and some disinvestment, which were disclosed earlier.

A senior official stated that “We had given some advance to FCI, of around Rs 450-500 billion. That was getting classified as capital expenditure. They returned the amount in March. So you will see that capital expenditure has gone down by that much when the data are released.” For the July 2016 – June 2017 period, the RBI has transferred Rs.306 billion as surplus.

The official indicated that the fiscal deficit data for the full year, i.e., April 2017 – March 2018, would be made public on May 31. At that time, the government will also announce the fourth quarter gross domestic product (GDP) data.

Disinvestment Proceeds and Direct Taxes

For its part, the government indicated that disinvestment proceeds had exceeded its revised target of Rs.1 trillion modestly. This was despite the drastic reductions in dividend rates from public sector enterprises and banks. The government also came out with two IPOs of Bharat Dynamics and HAL apart from two instances of share repurchases by MOIL and BEL.

As far as the direct tax collections, it stood Rs.9.95 trillion for March representing an increase of 17.1 percent from the previous year’s 101.5 percent of the targeted figure of Rs.9.8 trillion. Though the government indicated that more figures were expected, the latest data suggested 99 percent of the revised targeted figure of Rs.10.05 trillion. The officials are confident that tax collections would cross the Rs.10 trillion mark in the upcoming days when it would account for March 31 taxes. Importantly, the GST was favorable to the government until February only.

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