As govt heads into poll season, finances pose problems

CGST collections expected to fall well short of the 6.04 lakh crore target

A silver lining in the darkening picture of India’s finances is that it will likely keep the Modi government away from costly populism to win votes during election season.

Otherwise, the Centre’s balance sheet is a large, grey cloud. The oil import bill is a major problem on the expenditure side as crude soars to near $85 a barrel, but a revenue shortfall is beginning to rear its head.

The main reason is that CGST (Central Goods and Services Tax) collections are expected to fall well short of the Rs 6.04 lakh crore figure targeted for financial 2018-19.

With the first half of the year gone, the Centre has collected only 2.16 lakh crore, or 36% of the target. In other words, it will have to collect more than double the first half amount in the second half.

Given the rate at which revenues are rising, the Rs 64,000 crore per month needed as CGST from October to March is not possible even if the exchequer banks on the upcoming festive season push on revenue collection and a demand revival for consumer goods from Kerala, which is rebuilding after recent floods.

On the direct taxes front, the Centre is optimistic about exceeding its budgetary target and is moving on the right path with a 17% rise in the collection for the first half of the fiscal year.

But direct taxes – like income and corporate tax – account for around a third of the total tax kitty. The rest is indirect taxes like GST.

“The GST revenues not reaching the monthly asking rate….would be a key concern for the government,” said M S Mani, a partner at Deloitte India, adding that a robust increase in overall tax collections could suggest a change in the direct to indirect tax ratio.

Non-tax revenues are well below budget, putting a significant amount of pressure on the exchequer.

Prominent among these are receipts from privatisation or disinvestment. On this front, the government has collected only Rs 20,000 crore, a quarter of the target.

Other non-tax revenues such as spectrum sale, dividend from public sector companies and surplus from the Reserve Bank of India do not present much to cheer about either.

The pressure is high on the government to achieve tax revenues and disinvestment targets. If not, there may be a fiscal slippage of the sort the Reserve Bank of India warned about recently.

This means that, far from increasing spending during the election year, the Centre may be forced to cut back spending on key infrastructure projects. Finance Minister Arun Jaitley has maintained that capital expenditure will not take a hit, but the longer oil prices stay high and taxes don’t come in, the more difficult it is going to be to stick to this promise.

“The Centre may not resort to expenditure cut but may roll over certain subsidies to the next year's accounts to ensure it hits the fiscal deficit target. But that could hurt the next government with costs,” said Pronab Sen, India's former chief statistician.