India’s Path of Fiscal Consolidation

Concerns of the slowing down economy, need to pump capital to revive job creation had led to speculation that the Finance Minister would deviate from the path of fiscal consolidation. Contrary to popular beliefs the Finance Minister has chosen to stick to the gilded path.

The budgetary estimate aims at bringing down the deficit to 3.3 per cent of GDP in 2019-20 from 3.4 per cent in 2018-19.

Revenue Mobilization

The budget makes the following projections for revenue mobilization in the path of fiscal consolidation.

• Growth of 18.3 per cent in gross tax revenues in FY20.
• Within gross tax collections, the government expects an increase in direct tax collections by 18.6 per cent in FY20.
• The corporate tax collections are expected to grow at a rate of 15.4 per cent in FY20.
• Income tax collections are expected to grow by a staggering 23.2 per cent in FY20.
• Indirect tax collections are expected to grow around 18 per cent in FY20,
• Collections from central GST are estimated to be Rs 5.26 lakh crore in FY20. This implies a monthly run-rate of Rs 43,833 crore which is marginally higher than the current run-rate of Rs 39,313 crore.
• The government is also relying on dividends from the RBI and other public financial institutions, disinvestment proceeds as well as revenues from the telecom sector to shore up revenues.
• Further government is also relying more on revenue collected through cesses and surcharges to meet its expenditure obligations. The finance minister has raised the special additional excise duty and road and infrastructure cess each by one rupee on a litre of petrol and diesel.
• The revenue mobilization through ceases and surcharges are now greater than it’s the central government’s allocation to centrally sponsored schemes or even its total capital expenditure.

The targets set in the budget are highly challenging. Failure to meet these stiff targets together with risking the task of meeting the fiscal deficit target for this year will also cast doubts on the medium-term fiscal roadmap that envisages bringing down the deficit to 3 per cent in 2020-21.