Comment | The govt will have to slash capex to meet its fiscal deficit target

Data show that the central government’s fiscal deficit was 121.5 percent of the revised estimates for 2018-19 at the end of January. Will the target be met? The situation is much worse than last year, when at the end of January 2018 the fiscal deficit was 113.7 percent of the revised estimates.

What will it take for the government to meet the revised estimates for FY19? Revenue receipts till January-end were 68.3 percent of the target, so the government will have to gather 31.7 percent of the revenue target in February and March. Net tax revenue till January-end were a more or less similar proportion, which means that the tax collections will have to be stepped up in the last two months to meet the target.

How can the target be met? In 2017-18 they did achieve the deficit target, but that was because, while both revenue receipts and total expenditure was lower than the revised estimates, they slashed expenditure by more than the shortfall in receipts. And as we have seen the situation this year is even worse.

What of the expenditure side in the current fiscal year? As at January-end, revenue expenditure was 82.7 percent of revised estimates, compared to 81 percent during the previous year. The axe has fallen on capital expenditure, which at January-end was just 72.7 percent of the revised estimate. Indeed, capital expenditure till January-end is 13 percent lower than in the same period last fiscal. That the deficit is so high in spite of such brutal cuts is because of the revenue shortfall.

With tax and revenue receipts not being up to the mark, the government will have to slash expenditure even further if it wants to stick to the fiscal deficit target of 3.4 percent of Gross Domestic Product. It’s very likely that capex will be slashed further till March-end.

The government, of course, has the option of revising the GDP numbers higher to get the fiscal deficit right in percentage terms.