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India's fiscal deficit target overshot by 15% on revenue shortfall: DBS

Press Trust of India/Singapore 10 Jan 19 | 05:05 PM

In the first eight months of FY 2018-19, India's fiscal deficit target has overshot by 15 per cent, largely due to a revenue shortfall rather than front-loading of expenditure, Singapore's DBS banking group said in an economic commentary on Thursday.

"Lower than budgeted indirect tax revenues and weak divestment proceeds are a source of worry," wrote Radhika Rao, economist at DBS Group Research, in the commentary.

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Net direct tax collections have reached the halfway mark. These revenues typically improve towards the end of the year due to end-fiscal flows. Markets are less optimistic of a similar boost in indirect collections, the commentary said.

The current run-rate of the government's GST revenues is tracking a shortfall of Rs 70,000-80,000 crore against the annual budget.

ALSO READ: Direct tax collection shortfall worry likely to add fiscal deficit woes

An equally big concern are divestment efforts, with year-to-date collections still at a fifth of the target of Rs 80,000 crore, the commentary said.

To jumpstart the process, plans are to offload minority stake sales, conduct share buybacks and exchange-traded funds by end-year, alongside a possible merger of power sector financing firms.

A late push for additional dividends from state-owned entities and the RBI is also likely, with speculation that the central bank might transfer Rs 30,000-40,000 crore (0.2 per cent of GDP) to the state's coffers, which will be in addition to the Rs 40,000 crore assured in August 2018.

"Despite the downbeat year-to-date math, we think that a sizable slippage in the fiscal deficit target is unlikely," the commentary said.

ALSO READ: Advance GDP estimate at 7.2% gives little relief to fiscal deficit pressure

"We also observe that in recent years, the government has been proactive in jumpstarting expenditure earlier in the year, even if revenues catch-up at a much slower pace," it said.

To facilitate this process, the Budget presentation was also brought forward by a month to February. This has led the fiscal run-rate to worsen progressively for three-fourths of the year and then moderate in the final quarter as expenditure is curtailed and seasonal revenue flows kick-in, it said.

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