Buoyed by robust tax collections, the government on Monday effectively cut its gross borrowing target for the fiscal year by announcing that it will absorb ₹1.59 lakh crore of additional borrowing for tax compensation to states within its annual target.
This, in effect, reduces the annual gross borrowing target to ₹10.46 lakh crore for the year to March 31 from the budgeted ₹12.05 lakh crore.
On Monday, the Centre said that it would borrow ₹5.03 lakh crore in the six months to end-March after borrowing ₹7.02 lakh crore in the first half. But in a surprise move, the government announced that the second-half borrowing “also factors requirements for the release of the balance amount to states on account of back-to-back loan facility in-lieu of GST (goods and services tax) compensation during the year”. This reduces the effective borrowing target for the second half to ₹3.44 lakh crore.
The Centre’s borrowing calendar for the second half has provided a positive surprise, said Aditi Nayar, chief economist, ICRA Ltd.
“The implication is that the government’s fiscal deficit will be around ₹1.6 lakh crore lower than budgeted, despite the modest rise in expenditure, a clear confirmation of the revenue upturn that is underway. This also suggests that the government’s disinvestment programme is assessed to be on track,” she added.
{{/usCountry}}“The implication is that the government’s fiscal deficit will be around ₹1.6 lakh crore lower than budgeted, despite the modest rise in expenditure, a clear confirmation of the revenue upturn that is underway. This also suggests that the government’s disinvestment programme is assessed to be on track,” she added.
{{/usCountry}}After the GST Council meeting in May, it was decided that the Centre would borrow ₹1.59 lakh crore and release it to states on a back-to-back basis to make up for the inadequate compensation given to them for revenue losses incurred due to the implementation of GST.
Care Ratings’ chief economist Madan Sabnavis said the government is making heroic assumptions about disinvestment and non-tax revenue even as telecom fee deferments will impact revenue collections.
This may also reduce the fiscal deficit of the Centre from the budgeted 6.8% of gross domestic product (GDP). “Given the tax buoyancy, we expect the fiscal deficit to be around 6.6% of GDP. Of course, disinvestment is the joker in the pack,” said Sunil Kumar Sinha, principal economist at India Ratings.