Fiscal Deficit (Union government) for September 2019.

Fiscal deficit reached over 78% of full year estimate for Apr-Aug 2019-20.

Center's gross fiscal deficit reached 78.7% of its budgeted estimate (BE) of Rs. 7.03 trillion by the end of August 2019, equivalent to Rs. 5.53 trillion in absolute terms. It is marginally higher than 77.8% of BE reached in the previous month. However, the fiscal deficit is lower against 94.7% of the FY19 target reached in August last year. This is largely on account of a rise in non-tax revenue receipts which grew by 102% YoY in August after a surplus transfer by RBI of Rs. 1.47 trillion to centre.

A lower total expenditure than the last year can also be attributed to keeping the fiscal deficit contained in during Apr-Aug 2019. The center's total expenditure stood at Rs. 11.75 trillion, which touched 42.2% of BE of this year as against 43.85% of the last year budgeted target. The capital expenditure registered a lower growth of 3% YoY and stood at Rs. 3.38 trillion, which is 40.3% of the budgeted estimate against 44.1% in the year-ago period. A compression in capital expenditure could be viewed as negative for India's economic growth recovery.

On the revenue side, the data showed that the government's tax revenue collection continued to be feeble at 24.53% of this year's target and is in line with last year's performance. Furthermore, the proposed cuts in corporate tax rates by the government recently to boost economic activity are estimated to reduce government tax revenue by Rs. 1.45 trillion in the current fiscal. Non-tax revenue, on the other hand, touched 63.4% of the budgeted target on account of surplus transfer from RBI.

Although the recent measures taken by the government will leave a hole in government finances, the government is not intending to cut expenditures to meet the fiscal deficit target for the year. Against this backdrop, we believe the recent moves will widen the fiscal deficit target of India in the current fiscal year.