Slippage in Fiscal Targets

Why in news?

The government has breached its annual fiscal deficit target in just 8 months of the fiscal year.

What is the current status?

Fiscal deficit is the difference between the government expenditure and revenue.
Fiscal deficit target is fixed at 3.2% of the gross domestic product (GDP).
Accordingly the Budget Estimate (BE) was Rs 5.5 lakh crore target for the current fiscal year.
However, fiscal deficit for April-November 2017 has reached Rs 6.12 lakh crore.
This means that the fiscal target for the current year has already reached 112% of the Budget Estimate.
This is the highest deviation from the Budget Estimates (BE) for the first eight months since the 2008 global financial crisis.

What are the causes?

The Centre is facing a considerable tax revenue shortfall, and shortfall due to low indirect tax revenue is expected to occupy a larger portion.
Notably, GST collections were also far below the government target.
Further, irrespective of the planned disinvestment revenue, the shortfall in the non-tax revenues is considerably worrying.
The only positive for the government is that the direct tax collections are optimistic with the target.

What are the implications?

Fiscal - The government needs to have a net fiscal surplus in the next four months if it has to meet its fiscal target, which is a difficult ask.
Significantly, the government plans to borrow Rs 50,000 crore additionally, which will only add to the problem.
Notably, for the same period, the ‘Revenue Deficit’ stood at 152% of the total target.
This indicates that even the quality of the fiscal deficit is poor as much of the money is not going into asset creation.
Policy challenges - For the deficit target to be met, capital outlay and net lending would have to contract for the rest of the fiscal year.
This would have negative implications for investment as well as overall economic activity.
This could further potentially affect the tax revenues.

Source: Business Standard