Silver Lining

Despite the Likely Fiscal Slippage This Year, Next Year May Be Better for Government Finances Due to Higher Tax Collections.

- Dipak Mondal

While upgrading India’s sovereign rating from Baa3 to Baa2 in November last year, Moody’s elucidated that “a material deterioration in fiscal metrics and the outlook for general government fiscal consolidation would put negative pressure on the rating”.

Over two months after the upgrade – for many a testimony to Prime Minister Narendra Modi’s push for economic reforms – the government is staring at a possible slippage from its fiscal deficit roadmap. The government, which had announced an additional borrowing of ₹50,000 crore in the last quarter of the financial year, setting off talks of it missing the target of 3.2 per cent fiscal deficit by a wide margin, did partial damage control by reducing the figure to ₹20,000 crore.

Is this the silver-lining economists and fiscal fundamentalists have been looking for in the dark cloud hovering over the economy? Is this a sign of the government’s growing confidence in its ability to mobilise enough revenue to pay for some of the ‘extravagance’ leading up to the 2019 General elections? Or is it just delaying the inevitable – going off the fiscal consolidation roadmap – to next year?

Non-tax Disappoints

While the decision to reduce the additional borrowing by ₹30,000 crore is encouraging, according to many economists, the risk of breaching of the fiscal deficit target remains; fiscal deficit in absolute terms has already reached 112 per cent of the Budget estimate of ₹5.46 lakh crore.

“The fiscal deficit target may be breached by 10 basis points instead of the 30-40 basis points expected after the ₹50,000 crore additional borrowing was announced,” says a chief economist of a pharmaceutical and financial services company. He refused to be quoted as he is not the authorised spokesperson.