Government may miss FY16 fiscal deficit target

Moneylife Digital Team 19 January 2016

While the miss is due to lower than expected GDP, the absolute fiscal deficit is seen close to the budgeted figure at around Rs5.56 lakh crore, which is a rise of 8.5%, says India Ratings & Research

The Indian government is likely to miss its FY2016 fiscal deficit mainly due to lower than expected gross domestic product (GDP), says India Ratings and Research (Ind-Ra), in a report.

According to the ratings agency, the FY16 fiscal deficit is likely to rise to 4.1% of GDP, higher than the Indian government's budgeted target of 3.9%. While the miss is due to lower than expected GDP, the absolute fiscal deficit is seen close to the budgeted figure at around Rs5.56 lakh crore, which is a rise of 8.5%. Fiscal deficit for the first eight month of FY16 stood at Rs4.83 lakh crore, which is 87% of the budgeted deficit for the full year, it added.

Ind-Ra said, "The main reason for the higher than budgeted fiscal deficit as a percent of GDP is the likely lower nominal GDP growth rate in FY16 than the 11.5% nominal GDP growth assumed in the FY16 budget estimate. Nominal GDP growth FY16 is expected at 9.6%, weaker than budgeted due to the lower than expected inflation. We estimate that wholesale prices on an average have declined by 1.4% in FY16. Tax revenues for the period April-November stood at 50% of the full year budgeted, at Rs9.19 lakh crore."

The ratings agency said it expect the GDP to expand at 7.9% in FY2017 from 7.4% in FY2016. It said, "After bottoming out in FY13, the GDP so far has followed a steady growth trajectory and is expected to do so even in the medium term. All major sectors namely agriculture, industry and services are expected to contribute to the gross value added (GVA) growth. Under the assumption of a normal monsoon, the agricultural GVA is expected to recover and grow at 2.2% in FY17 compared with 1.1% in FY16. Since there has not been any past instance of three consecutive monsoon failures, the likelihood of a normal monsoon in 2016 is quite high. The information available so far indicates that La Nina, a phenomenon associated with good monsoons, will hold sway in 2016."

To achieve the 3.9% fiscal deficit target, fiscal deficit will have to be compressed by Rs21,100 crore. Ind-Ra said it believes this can be achieved only by deferring parts of the subsidy payments to FY17, cutting down capex or a combination of both. Cutting down capex, when the need is to step up government investment, will be counterproductive, it warned.

According to the medium-term fiscal policy statement published along with the FY16 budget, the fiscal deficit target for FY17 and FY18 is 3.5% and 3.0%, respectively. However, Ind-Ra says it believe achieving these targets in view of the likely acceptance and implementation of the recommendations of the Seventh Central Pay Commission will be difficult.

Ind-Ra expects the fiscal deficit of FY17 to come in at 3.9% of GDP. This will push the attainment of the fiscal deficit target of 3% of GDP to FY19, a year later than envisaged in the fiscal policy statement. In the past also, pay revisions have pushed fiscal consolidation targets. Accordingly, the fiscal deficit targets are likely to be 3.9%, 3.5% and 3.0% in 2016-17, 2017-18 and 2018-19 respectively.

"In view of the above, stepping up government capex is indeed going to be challenging. Yet, we believes the government will have to catch the bull by the horns and find ways to step up public investment," the ratings agency concluded.

Comments

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Ganesh Kamat

1 decade ago

1)Start-up needs protection from BABUS,
Babus Harassing the youth,
Traders,Farmers, Voters.. who wants to work.
Babus are ruthless as they
pay "Protection Money" to......?
for Posting/ Promotion/ Permit...
Administrations Reform is a Must,
2)Farmers suicide can get reduced,
by encouraging them to sell their
farm products on Railways to commuter
& roads to motorists, also we need
more Passenger Train, to help farmers
to sell farm products, to nearby Towns.
3) For Big Tax collections
take 1% Tax from 20 Taxpayers
than 20% Tax from one Taxpayer.
4) So with 1% Tax on gross Receipts,
the Taxpayers will work to improve Business
R.&D,Social work.So more Employment,
make in India, less Farmer Suicide,
No Black Money & Peace of mind to the people.
5) Average say on Rs. 30 L Receipt,
Pay Rs. 0.3 Lac Tax per year.
If Taxpayers = 60 Cr.
Tax collection will be 18 L- Cr.
So Big Tax Collections.