Fiscal Deficit (Union government)

India's fiscal deficit touched 92.6% of 2019-20 target in September.

Published monthly by Controller General of Accounts (CGA), Ministry of Finance, GoI. Updated till September 2019. (Published on October 31, 2019)  

Recent Data Trend

A weak tax-revenue collection due to sluggish economic growth led to the widening of centre's gross fiscal deficit to Rs. 6.5 trillion ( 92.6% of the budgeted estimates (BE)) during Apr-Sep 2019. However, the fiscal deficit level is lower than 95.27% of the FY19 target reached in the year-ago period. As government expenditure continues to be resilient even after a weak tax collection, a rise in non-tax revenue receipts largely helped limit the fiscal deficit from widening further during the first half of FY20.

The center's total expenditure is at par with last year's level and stood at Rs. 14.9 trillion reaching 53.4% of the amount budgeted for FY20. The quality of spending also improved as the capital expenditure registered a growth of 15.3% YoY and touched 55.5% of the BE. It is higher than 54.2% reached in the year-ago period.

Since the expenditure seems to be on track, the pressure on the government's fiscal balance is mainly from the revenue side, particularly from tax-revenue receipts. With the GST and direct tax revenue collection falling well short of its target, net tax receipts grew just by 4.2% during Apr-sep 2019. An estimated reduction of Rs. 1.45 trillion due to the proposed corporate tax cut along with pressure on import tariff revenues due to weak merchandise imports will further limit the tax revenue collection going forward.

Non-tax revenue receipts, on the other hand, touched 66.75% of the budgeted target on account of surplus transfer from RBI. It grew by 91.8% YoY in September.

At this backdrop, with a slew of measures proposed by the government in September while not intending to reduce its fiscal spending, missing the fiscal target of 3.3% of GDP is highly likely. Achieving its non-tax revenue target including the ambitious disinvestment target of Rs.1.05 trillion by the year end will help the governmnet not deviate much from its fiscal consolidation path.

Brief Overview

The central government accounts are divided mainly into two parts- Revenue Account and Capital Account. The revenue account consists of revenue receipts and revenue expenditure. Revenue receipts are accumulated from tax revenues (both via direct and indirect taxes) and non-tax revenues (interest payments dividend & profits etc.), while the revenue expenditure is broadly the expenditure which doesn't result in the creation of assets (administrative expenses of government, interest charges on debt incurred, subsidies etc.)

Similarly, the capital account consists of capital payments and capital expenditure. The capital receipts mainly include recoveries of loans & advances and earnings from disinvestment while the capital expenditure is the expenditure on acquisition of buildings, lands, and investments in bonds, shares etc.

The excess of expenditure over receipts (on both accounts) gives the fiscal health measure of the government known as the gross fiscal deficit (GFD). Another important gauge of fiscal operations is the revenue deficit (excess of expenditures over receipts in the revenue account). The increase in revenue deficit generally implies that the government is increasingly using its finances to fund its recurring non-productive expenses and no actual asset creation is taking place. To discipline the government in its financial management, the Fiscal responsibility, and Budget Management (FRBM) Act was brought in during the UPA regime in 2003. This act aimed at bringing fiscal discipline by reducing India's fiscal deficit (5.7% of GDP in 2003) to 3% of GDP and elimination of revenue deficit by March 2008. (Revenue deficit stood at 2% of GDP or fiscal year 2016-17)

Government Accounts- Annual

Note: The years represent the fiscal years so 2017 denotes FY 2017 (April 2016-March 2017). The values for FY 2019 and FY 2020 represent the budget estimates for the fiscal year April 2018- March 2019 and April 2019- March 2020. 

Glossary

   Revenue Receipts The earnings made by the government which neither create liabilities or reduce assets of the government. For example, receipts from tax collections, interest on investments, dividend earnings and earnings from services provided.
   Capital Receipts The earnings made by the government which creates liabilities (borrowing from the public in form of PPF and small saving deposits, National Pension Scheme etc. ) or reduce assets (divesting stake in a particular company, called disinvestment or recovering loans made to state governments.)
   Non-debt Capital Receipts These are capital receipts which do not create debt for the government such as recovery of loans made and selling a stake in a public company.
   Revenue expenditure It is the expenditure made by the government on a recurring basis such as administrative expenses, interest payments on loan taken by the government, pensions, subsidies etc.
   Capital expenditure It is a productive, asset-creating (or liability reducing) long-period, non-recurring expenditure of the government. For example; expenditure on creating the infrastructure (roads, electricity dams etc.), loans made to state governments and repayment of loans by the central government (reducing liability).
   Gross Fiscal Deficit The fiscal deficit of the government is the difference between the total expenditure incurred and the total non-debt capital receipts (total receipts minus the earnings from borrowing) of the government. It indicates the total borrowing requirements (incl. the need for interest payments) of the government.
   Revenue Deficit It is the difference between the revenue receipts and the revenue expenditure of the central government. Revenue deficit indicates the excess amount of expenditure by the government to fund current consumption needs rather than for productive asset-creation.
   Gross Primary Deficit It is the difference between the fiscal deficit of the current year and the interest payments on the previous borrowings made by the government. It indicates how much of the government borrowing is going to meet expenses other than interest payments.

 

For more information please visit the official government website.

Next Release Date: October 31st, 2019