A strained fiscal situation is reflected in fiscal deficit reaching nearly 93 per cent of the budget estimate at the end of the first half of this fiscal. The future certainly does not look bright with falling revenue and rising expenditure.
In absolute terms, the fiscal deficit, the expenditure-revenue gap, stood at Rs 6,51,554 crore. The government had pegged the deficit for this fiscal at Rs 7.03 trillion, hoping to restrict it at 3.3 per cent of the gross domestic product (GDP).
What is significant is that even while Government spending has slowly picked up, expenditure growth has happened mainly in those areas which have a very low multiplier effect. Capital expenditure was 55.5 per cent of the budget estimate as against 54.2 per cent for the same period a year ago.
Revenue receipts do not paint a rosy picture. The gross tax collection has witnessed a mere 1.5 per cent year-on-year growth. Even the much-hyped Rs 4.5-trillion corporate tax reduction has had very marginal impact. The drop in indirect tax collection is nothing more than a picture of the economy marred by pared Goods and Services Tax(GST) rates and hastened pace for MSME sector refund.
Revenue receipts stood at Rs 8.17 trillion at the end of the first half, when it had been pegged at Rs 19.62 trillion for the entire fiscal. Equally appalling has been the slow 6 per cent growth in spending by states mainly owing to the drop in tax earnings. The situation will be worse with the corporate tax cuts.
Growth has slowed to a six-year-low of 5 per cent and is projected to grow 6.1 per cent this fiscal as against 6.8 in the last one.
In the backdrop of dwindling tax collection, the Government's spending to revive PSUs that were once milch cows paying hefty dividends at times it needed cash has now turned a thing of the past. Instead, they are emptying the coffers through massive Government revival packages. This is expected to widen the deficit further.
The Government is set to spend Rs 70,000 crore to breathe fresh life into two telecom majors Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd. Telecom Minister Ravi Shankar Prasad said at a briefing last week.
Hindustan Aeronautics Ltd has been been forced to borrow for paying its staff this year, all because it gave the Government dividends, emptying its cash reserves. It is paying Rs 30,000 crore to sustain Air India. The list never ends.
It will not be surprising if some of these workforce-trimmed entities are sold off along with performing ones, explaining why the Government has not reworked its borrowing target for the year.
The Government also had a Rs 1.76-lakh crore bonanza from the reserves of the Reserve Bank of India recently.
As Emkay Global Financial Services summed up the fiscal scenario: "We believe the Centre's fiscal space is quite strained and might lead to a fiscal slippage of 23bps. Based on this and our rate cut expectations, we expect a bear-steepening of the yield curve from the current level of 6.5 per cent in 10-yr. We are not expecting a personal tax cut with strained fiscal space and are of the view that it is not likely to push the consumption cycle in a sustainable manner."