Govt short of finances as it tries to fix economy


Published On: Thursday, September 10, 2020 | By:

 Govt short of finances as it tries to fix economy

The latest numbers on the government’s fiscal deficit for the April-July 2020 period have exceeded the annual Budget target by 3 percent. In April-June 2020, the fiscal deficit had already risen to about 83 percent of the target for the full year. The figures on government finances are based on monthly reports released by the Controller General of Accounts (CGA). But what gets highlighted and discussed are the cumulative numbers for the latest period for which the data is released. A study of the monthly trajectory of the government’s revenues and expenditure, therefore, may present a slightly different picture, providing different takeaways for policymakers and observers of the Indian economy.

The broader picture is one of unprecedented stress, with the Centre’s net revenue in the April-July period of 2020 having contracted by 42 percent, even though its overall expenditure growth was kept at 11 percent. The Budget, presented in February 2020, had projected net revenue growth of 20 percent and an expenditure increase of 13 percent over the provisional estimates of 2019-20. No surprise, then, that the fiscal deficit figure has already exceeded its annual projection.

But the granular data on central government finances shows a month-on-month decline in the rate of contraction in its gross tax revenue collections. From a contraction of 44 percent in April, the fall in gross tax collections was lower at 37 percent in May, 23 percent in June, and 20 percent in July.

The April-July contraction, therefore, was over 29 percent, but it was still huge and nowhere near the annual 20 percent growth that was projected for the full year. But the trajectory over the first four months of the current year indicates that the extent of the tax revenue shortfall, compared to the previous year, has been on a gradual decline as the economy has begun to open up from June onwards.

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