After pressing the accelerator pedal on spending in the previous three months, the Centre has started applying brakes again in October amid further deceleration in tax revenue growth, the latest data on government finances released on Friday showed.
The year-on-year growth in the Centre's total budgetary expenditure rose from (-)11% in June to 34% in September, but slowed again to 9% in October.
Amid rising concerns over a big slippage in tax revenue, the quality of spending has improved in recent months. Budgetary capex grew by 13.6% y-o-y in April-October of this fiscal, a bit lower than 15.3% seen in the first six months of the year, but it was still above the required rate of 11.6% to achieve the budget target. Budget capex had jumped 65% in Q2, against a contraction of 28% in Q1.
According to the Controller General of Accounts data, the Centre’s fiscal deficit in April-October of FY20 came in at Rs 7,20,445 crore or 102.4% of the budget estimate for the whole of the fiscal year. In the corresponding period last year, the deficit was 103.9% of the for the whole fiscal. What came to the government's rescue was the `58,000 crore extra receipts from the RBI following the reformulation of its economic capital framework.
With the GST and direct tax revenue falling considerably short, net tax receipts (after mandatory transfers to states) grew just 3.4% in the first seven months of FY20 against the required rate (BE FY20 against FY19 actuals) of 25.3%.
Against a full-year growth target of 17.4% for direct tax collections, the mop-up (net of refunds) in April-October was Rs 5.17 lakh crore, just 3.5% higher than collections in the same period a year ago. The tax revenue collections were 41.4% of the budget estimate during April-October of FY20, as againt 44.7% of the full-year budget estimate during the year ago period.
Going by the trends in revenues and expenditure, the Centre may find it difficult to stick to the fiscal deficit target of 3.3% for the current fiscal.
Last year, as the tax growth faltered, the Centre had cut the budget size by Rs 1.3 lakh crore or 5.35% from the originally projected level (BE), yet it let the deficit slip to 3.4% of the gross domestic product (GDP) against BE of 3.3%.