New Delhi, July 1 (SocialNews.XYZ) With economic disruptions set for a long haul due to Covid-19 pandemic, India could see its fiscal deficit this year to balloon to over 6.8 per cent of GDP, a report by a brokerage firm said on Wednesday.
According to a report on Indian economy by Emkay Global Financial Services, low economic activity and lower tax collections coupled with expanded expenditure in schemes like MGNREGA, PM Kisan and extension of PM Gareeb Kalyan Yojana till November, 2020 has created a scenario where the deficit would widen.
The fiscal deficit is the total amount by which the government's expenses for a year exceeds its revenues.
The concern on the deficit comes from the trend witnessed in the first two months of current fiscal. Lower net revenue receipts and elevated expenditure has pushed the fiscal deficit to 59 per cent of budget estimate (BE) in the two month period of April-May. As a proportion to BE, it is two-year high.
Moreover, Gross tax buoyancy is negative with direct tax collection declining by 15 per cent yoy due to deferment in tax filing date while indirect tax collection falling 52 per cent yoy due to deferment in GST fillings and abnormally low economic activity.
"We believe that gross tax collection to fall 5.3 per cent yoy in FY21, on a sharp slowdown in the nominal GDP growth. Vivad Se Vishwas scheme has been factored in this assumption. Non-tax revenue collections have also declined by 62 per cent yoy on lower mobilization of other non-tax revenue; receipts has also fallen to a 7-year low," Emkay said in its report justifying high deficit numbers for this year.
The expectations of a significant increase in telecom auction of Rs1 lakh crore is also unrealistic. We believe that a shortfall for the same would be Rs 75,000 crore. There has been no disinvestment activity so far, and the target of Rs 2 lakh crore looks unrealistic. The gap between NSS rates and deposits rates have again widened to 120bps, which again gives an edge to NSS instruments over bank deposits, the brokerage report said.
The government has used the escape clause in FRBM Act for fY20 and fy21 as fiscal deficit has been expanded by 0.5 per cent of the target to 3.8 and 3.5 per cent respectively.
Emkay said that the seriousness of the revenue position could be seen from 20 per cent decline in e-way bill over last year. Expenditure has largely declined on subsidies, whereas it has expanded on MNREGA, PM Kisan and transfers to the states (which were preponed this year).
Also, the extension of PM Gareeb Kalyan Scheme till November increases the food subsidy cost by another Rs 90,000 crore. Total increase in food subsidy due to various schemes is Rs1.3 lakh crore.
According to the estimates done by the brokerage, overall tax collections of the Centre would have shortfall of Rs 3.2 lakh crore.
For the current fiscal governments borrowings target has already been raised by over 50 per cent as additional expenditure and funding needs to stimulate the economy hit by Covid-19 pandemic has pushed up need to mobilise resources.
Accordingly, the estimated gross market borrowing in the financial year 2020-21 has now been set at Rs 12 lakh crore in place of Rs 7.80 lakh crore as per budget estimate for current year.
Source: IANS
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