Finance Minister Nirmala Sitharaman's first budget on July 5 will be scrutinised for its fiscal math.
In the interim budget presented in February 2019, the fiscal deficit target of 3.3 per cent for FY2018-19 set by former finance minister Arun Jaitley was hiked marginally to 3.4 per cent by in-charge finance minister Piyush Goyal. This comes after the government had spent all of its budgeted amount by November 2018.
After receiving a large mandate in the polls, the Modi government is expected to announce big-ticket schemes so as to boost growth. While the GDP growth rate slowed down to a five year low of 5.8 per cent, industrial production numbers and automobile sales also registered the lowest growth in the decade.
The liquidity crunch caused by the IL&FS crisis has halted investment activities. A 75 basis point rate cut by the RBI also failed to trigger investments.
A number of welfare schemes like PM Kisan and PM Shram Yogi Mandhan Schemes are also awaiting rollout following their announcement in the interim budget. A marked increase in the PM Ayushman Bharat insurance scheme allocation is also expected in the upcoming budget.
With all these schemes in the pipeline and the government's focus on reviving growth, more resources are likely to be allocated in the budget.
However on the revenue front, the Centre netted Rs 11.12 lakh crore of direct tax revenue from taxpayers FY 2018-19, which is higher than last year's Rs 10.6 lakh crore collection but fell short of the revised budget estimates of Rs 12 lakh crore this year.
Collection from GST stood at Rs 11.77 lakh crore, which is also short of the GST Council's target of Rs 14 lakh crore for the last fiscal. In the month of June, GST collections dipped below the Rs 1 lakh crore mark for the first time, as the economy faced the impact of an overall slowdown in consumer demand.
In all likelihood, revenue expenditure is likely to grow to Rs 24.5 lakh crore this year with a renewed focus on social schemes and rural infrastructure, economists said.
Last year's shortfall in revenue was balanced this year by cutting government expenditure to Rs 23.1 lakh crore, or 94.1 per cent of the revised budget estimates. While capital expenditure of the government was cut by 4.3 per cent to Rs 3.03 lakh crore, its revenue expenditure was reduced by a sharp 6.2 per cent to Rs 2.1 lakh crore, finance ministry data showed.
“In all likelihood, the fiscal deficit target this year could be increased by 10-20 basis points from the target set in the last budget," said Jyoti Roy, economist and equity strategist with Angel Broking. "This will be on expected lines and would not surprise the market which has by now factored in this rise in the fiscal deficit," Roy added, saying that the interest on government securities are prevailing over and above the normal range of 75 basis points interest spread, above the RBI repo rate.
In a recently released data by the Controller General of Accounts (CGA), the fiscal deficit touched 52 per cent of the budget estimate for the full year in the first two months of 2019-20. The gap between the government's revenue and expenditure was recorded at Rs 3,66,157 crore. In the interim budget, the government had estimated fiscal deficit at Rs 7.03 lakh crore for 2019-20.
The data showed that the government's net tax revenue fell short by Rs 1,68,223 crore or 0.9 per cent of GDP. Maintaining the fiscal deficit at 3.4 per cent in 2018-19 would need the government to cut its own expense and shifting them to public sector entities like the Food Corporation of India (FCI) which carries a large backlog of pending payments for food subsidy from the government.
As Nirmala Sithraman would rise to present the budget, the prospects of government revenue improving above the levels indicated in the interim budget seem bleak. "There is limited scope for including any large expenditure programme in this budget. The fiscal deficit target could be maintained only if the Jalan Committee recommends additional transfers from the RBI," said D.K. Srivastava, chief policy adviser, EY India.