New Delhi: Better tax collection, particularly the higher GST collection, coupled with higher dividend payment from the Reserve Bank of India, brought down the fiscal deficit number to 9.3% of the GDP from the revised estimate of 9.5%, bringing some relief for the government, which is trying to gradually bring it down to 4.5% of the GDP by FY 2025-26.
According to the revised estimate presented by finance minister Nirmala Sitharaman in February this year, the fiscal deficit for FY 2020-21 was to be Rs 18.48 lakh crore, 9.5% of the GDP. However, as per the provisional number released on Monday, the provisional fiscal deficit is estimated to be Rs 18.21 lakh crore, 9.3% of the GDP.
“This is largely because of the better revenues that the government generated in the last quarter of previous financial year. One of the things is that GST proceeds exceeded estimation. I think the buoyancy started working in revenues from the GST side,” said Professor NR Bhanumurthy, Vice Chancellor of the BASE University in Bengaluru.
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According to Professor Bhanumurthy, the other factor that helped the government to cut the fiscal deficit was higher dividend payment by the Reserve Bank, which exceeded the assumption made by the government in the last year’s budget.
“These two major things actually helped. In fact it has reduced the fiscal deficit by just Rs 30,000 crores or so, that is largely because of the revenue from the GST and higher dividends from the RBI,” he told ETV Bharat.
Buoyancy in GST collection
In the last six months of the previous fiscal (FY-20-21), the GST collection was above Rs 1 lakh crore in two months (October-November) and above Rs 1.1 lakh crore in four months (December-March) as it touched a record Rs 1.24 lakh crore in March this year.
Near double digit fiscal deficit
While presenting the last year’s budget in February 2020, before the outbreak of Covid-19 global pandemic, the finance minister Nirmala Sitharaman estimated that the fiscal deficit for FY 2020-21 would be Rs 7.96 lakh crore, 3.5% of the GDP.
However, due to the adverse economic impact of Covid-19 pandemic, and also due to the government’s decision to bring some off budget expenditures formally into the general budget, the fiscal deficit was expected to touch Rs 18.48 lakh crore, an increase of 10.52 lakh crore or the increase of 132% from the budget estimate.
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It caused concerns among the economists and policy makers as a near double digit fiscal deficit may lead to downgrading of India’s sovereign rating an investment destination, adversely affecting the cycle of investment and growth.
However, even a marginal decline of Rs 27,000 crore, strengthens the government’s hopes that it can achieve the five year glide path to bring it down to 4.5% of the GDP in the next five years.
What led to decline in fiscal deficit?
According to Devendra Kumar Pant, Chief Economist, India Ratings & Research, the marginal decline was mainly due to 5.9% higher net tax revenue collection and 23.9% higher collections of non-debt capital receipts.
The latest data released by the Controller General of Accounts (CGA) on Monday showed that the net tax revenue of the government increased from Rs 13,46,501 crores in FY 2019-20 to Rs 14,24,035, up by 5.9% despite the adverse economic impact of Covid-19 which caused a contraction of 7.3% in the country’s GDP in the last fiscal.
Similarly, the non-debt capital receipts, also went up from Rs 46,497 crores in FY 2019-20 to Rs 57,626 crores in FY 2020-21, an increase of nearly 24%.
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In addition to this, as pointed out by Professor Bhanumurthy, a dividend of over Rs 99,000 crore transferred by the Reserve Bank also helped the government.
On May 21, the Reserve Bank announced that it would pay Rs 99,122 crore to the government as dividend for FY 2020-21. The dividend payment is for July 2020 to March 2021 period.
