Fiscal deficit reaches 87% of full-year target in November

NEW DELHI: India’s fiscal deficit at the end of November was 87% of the target for the entire financial year, suggesting some struggle over the next four months but the government is still expected to stay within the budgeted figure without resorting to material spending cuts.

The fiscal deficit for 2015-16 is budgeted at Rs 5.5 lakh core, or 3.9% of GDP.

The government has continued with its strategy of fast-paced capital spending, suggesting it is confident of meeting the fiscal target for the year. By November 72.3% of the budgeted plan capital spending had been completed, compared to 51% a year ago.

Usually, in a year of fiscal stress, the plan spending gets axed.

“Notwithstanding the tepid accretion of direct taxes in November 2015, the revenue and fiscal deficits of the union government remain considerably lower than the levels in April-November 2014. Moreover, the continued healthy pace of growth of capital expenditure is encouraging,” said Aditi Nayar, senior economist, ICRA.

Fiscal deficit was 98.9% of budget estimate at the end of November 2014, forcing the government to go in for sharp cuts to stay within the target.

The fiscal maths has become slightly difficult this year because of statistical reasons. The nominal GDP growth is likely to be much less than budgeted 11.15%, which means that deficit will have to be lower than Rs 5.5 lakh crore in absolute terms for the 3.9% of GDP target to be met.

Nominal GDP growth, which refers to growth in national income at current and market prices, is likely to be about 8% in the current year because of the deflation in commodity prices.

“Slower-than-anticipated nominal GDP growth (8.2% versus budget estimate of 11.15%) will itself raise the deficit target by 0.2% of GDP,” the mid-year economic analysis tabled by the government last month said.

A moderate Rs 30,000-40,000 crore shortfall in tax revenues and lower than budgeted Rs 69,500 crore divestment receipts will add to challenge. The government has managed to raise only about Rs 12,700 crore so far from divestment.

At the end of the first eight months of the fiscal, the tax revenues crossed 50% of the target, while non-tax revenues fared better, with 78% of budgeted amount already in the bag.