• HDFC
• 10 Sep 2018
• Knowledge Centre

HDFC, Tester

The macroeconomic data released by the Controller General of Accounts (CGA)on 1st September 2018 revealed that the country’s fiscal deficit, or the difference between the income and the expenditure of the Central Government, has reached 86.5% of the Budget Estimate for the April-July 2018 period of the current fiscal.

 

Some numbers

 

The datarevealed that while income grew by 19%, expenditure was higher by over 36% in this period. This resulted in the fiscal deficit coming in higher than 86%. However, this is lower than last year when the fiscal deficit stood at 92.4%.For April-July 2018, revenue growth was at a robust 15%, outpacing the 9% rise in revenue expenditure, and allowing for a healthy 17% expansion in capital outlay.

 

A publication has quoted Ms. Aditi Nayar, Principal Economist of ICRA as saying that the market will continue to monitor the likelihood of the Government meeting the budgeted targets for revenues related to the GST, dividends,and profits, and disinvestment. It will also assess whether the outlays required for revised MSPs, the NHPS, fuel and other subsidies, and bank recapitalization would prove to be adequate.

 

“While fiscal slippage may not necessarily arise in FY19, there is a risk that capital spending would be curtailed to prevent breaching the fiscal deficit targets,” she added.

 

She also said that the size of market borrowings for both the Central and the State Governments for the second half of the current fiscal, and the expectations regarding the magnitude of open market operations to be conducted by the RBI, are factors that would influence G-sec yields going forward.

 

Conventional trend

 

In the initial months of any financial year, revenue inflows are thin, making deficits seem bloated. Going by this thumb rule, the latest figures should not be a cause for worry if revenues pick up. However, lethargy in disinvestment receipts and the shortfall in GST revenue are causes for concern. Another strain on the fiscal deficit would be the spending in the run-up to next year’s general elections.

 

The pace of overall spending has been marginally slower this year than the year-ago period, owing to a squeeze in revenue spending. The Centre’s total expenditure was 36.4% of the FY19 target, as compared to 37.7% in the corresponding period of the previous year. The Centre’s fiscal deficit for FY19 is budgeted at 3.3% of the GDP, as against the actual 3.5% in FY18.