Government may undershoot gross tax revenue by Rs 1 trillion+

By Madhavi Arora

On broad accounts, the Budget has been able to more than match the fiscal deficit target for FY20 at 3.3 per cent of the Gross Domestic Product (GDP). However, the consolidation needs more scrutiny.

The gross tax assumptions have been made over the revised estimates of FY19, while the FY20 required gross tax growth over provisional FY19 tax estimates looks high and optimistic at 18 per cent.

Realistically, the government could undershoot the gross tax revenue by Rs 1 trillion+.
Besides, strategic divestment needs to prop up to meet the target of more than Rs 1 trillion.

The Reserve Bank of India (RBI) and public sector undertaking (PSU) surplus transfer has also been increased from Rs 829 billion in interim FY20BE (budget estimate) to Rs 1.06 billion in Friday's FY20BE (budget estimate). Even the expenditure growth looks high at 22 per cent if one compares it with the provisional numbers of FY19.

Nonetheless, the bond and foreign exchange (FX) markets are rejoicing as there has been no shock and optically, fiscal consolidation looks to be in place. That said, some excitement indeed has faded as markets start assessing the budget assumptions.

On the funding of fiscal deficit, the dependence on the National Social Security Fund (NSSF) has remained high and has ticked up further, even as gross market borrowings have remained unchanged.

Besides, with the government looking for avenues to tap external financing via dollar denominated bonds over the medium term, this would reduce the pressure on domestic sources of financing to fund the deficit to that extent.

(Madhavi Arora is Economist - Forex and Rates, Edelweiss Securities. The views expressed are personal)