The estimates of the Interim Budget, presented in Parliament on February 1, seem set for significant revisions. The Centre’s direct tax receipts will likely fall short of the revised estimate (RE) by Rs 50,000 crore and if other budget numbers hold true, this would necessitate a corresponding expenditure compression to meet the fiscal deficit estimate of 3.4% of the gross domestic product (GDP). According to official sources, capital expenditure could turn out to be some Rs 30,000 crore less than the RE of Rs 3.16 lakh crore while revenue spending will trail the RE of Rs 21.4 lakh crore by Rs 20,000 crore. The control on expenditure could have a bearing on the economic growth in Q4 of this fiscal.
Historically, nearly 30% of the total direct taxes in a fiscal are collected in the final two months of the year. If this trend holds, given the April-December collection of Rs 7.3 lakh crore, the shortfall against the RE of Rs 12 lakh crore for the full year would have been some Rs 70,000 crore. But a greater focus on search and seizures and follow-up measures on presumably untaxed post-demonetisation cash deposits would yield some Rs 20,000 crore, reducing the likely shortfall to Rs 50,000 crore. Bulk of the shortfall will be in personal income tax receipts (Rs 47,000 crore) while corporate taxes will be around Rs 3,000 crore or so less than RE.
“Direct tax receipts could see a substantial improvement in March due to an increase in search and surveys being carried out by the income tax department,” an official said.
In the indirect tax category, the average monthly goods and services tax (GST) for the April-February period is Rs 97,300 crore, well above the required rate of Rs 95,650 crore to meet the RE. As GST revenue collections consistently missed the estimates by a wide margin, the government in the interim budget brought down FY19 estimate for central GST by Rs 1 lakh crore.
So, as far as GST collection is concerned, there could be an annual surplus of some Rs 20,000 crore, but given a likely matching shortfall in excise revenue (thanks to duty cuts) and the customs going by RE, the overall indirect tax collection is likely to stick to the RE.
On the non-tax side, disinvestment receipts could be higher than the FY19 target of Rs 80,000 crore by a few thousand crores.
“On the expenditure side, spending on some programmes could slow down as the election process has begun,” the official said.
Besides the agriculture ministry, some ministries that are likely to see spending lower than their respective REs include human resource development, atomic energy and law & justice. These ministries have spent less than two thirds of their budgets in the first ten months of FY19.
Of the likely savings on the revenue expenditure side, around Rs 7,000 crore is expected from the PM-Kisan scheme. While the plan is to transfer Rs 2,000 to over 12 crore beneficiary bank accounts by March-end, only 2.6 crore farmers have so far received the amount, indicating that the target will be missed by a wide margin.
If the tax revenue shortfall turns out to be are more than anticipated now, some more payments could be deferred to the next fiscal. The Centre hasn’t paid over Rs 20,000 crore of fuel subsidy dues for FY19.
The upward revision in nominal GDP for FY19 to Rs 190.54 lakh crore in the second advance estimate from Rs 188.41 lakh crore announced in the first advance estimate would also help contain FY19 fiscal deficit at the targetted level.