India to use revenue surge to fund welfare drives, not beat fiscal deficit target: Report

Source: Reuters

India will utilise a big bump in revenue collection to fund welfare programmes instead of trying to beat its fiscal deficit target or lower borrowing, two government sources told Reuters.

The country is set to exceed its 2020/21 revenue collection target of 15.45 trillion rupees ($207.77 billion), the first beat in four years, but a big chunk of the extra cash will go to a rural job programme and to provide free cereals to the poor.

The government is also likely to lose 550 billion rupees to 600 billion rupees in additional revenue after cutting fuel taxes this week to arrest runaway prices.

"Even after the cut in fuel taxes we should be able to exceed the tax collection target for the year but will use the funds for rural job programme and subsidies," said one of the officials, both of whom declined to be identified talking about market-sensitive figures.

"Fiscal deficit and borrowing will be at the budget estimate levels."

The finance ministry declined to comment.

Before the fuel tax cut, many economists had predicted India bettering its fiscal deficit target of 6.8 percent by 30-50 basis points for the year that ends on March 31.

Market participants had also expected the government to review its budgeted borrowing of 12.055 trillion rupees before starting discussions on its next budget to be presented on February 1.

Prime Minister Narendra Modi's administration is planning to top up its rural job-guarantee effort by up to 300 billion rupees, said the second official, having used up 730 billion rupees allocated for the current fiscal year.

The government will also have to provide an additional 500 billion each for its free food drive and an incentives programme for exporters, said the officials. The government has also approved 400 billion rupees extra in fertiliser subsidies.