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India fiscal deficit nears 93% of full-year target in 6 months, limiting scope for tax cuts
[NEW DELHI] India's fiscal deficit in the six months through September approached 93 per cent of the target for the full year, limiting the scope for Prime Minister Narendra Modi to consider more tax cuts to boost economic growth.
Mr Modi announced a US$20 billion corporate tax cut in September, aiming to boost corporate investments and economic growth, and is under pressure to consider cutting tax rates for individuals to support consumer demand.
Growth in Asia's third-largest economy slowed to a six-year-low of 5 per cent year-on-year in the April-June quarter, dragged down by slowing domestic demand and investments, and is projected to grow 6.1 per cent in the current fiscal year compared to 6.8 per cent in the previous fiscal year.
India's fiscal deficit in the six months through September stood at 6.52 trillion rupees (S$125 billion), or 92.6 per cent of the budgeted target for the current fiscal year, government data showed on Thursday.
Infrastructure output, which comprises eight sectors such as coal, crude oil and electricity, accounting for nearly 40 per cent of India's industrial output, fell 5.2 per cent in September from a year earlier, the worst performance in years, separate data released on Thursday showed.
Analysts said the government faces a "daunting task" of containing the deficit at a targeted 3.3 per cent of GDP for the current fiscal year ending in March 2020 as growth in tax collection has slowed down.
"The worrying trend is dismal performance of tax revenue," said Devendra Pant, chief economist at India Ratings and Research, the Indian arm of Fitch, adding net tax receipts grew 4.2 per cent in the first half of the fiscal year.
Krishnamurthy Subramanian, chief economic adviser at the finance ministry, earlier this month told Reuters the government had slashed corporate taxes to attract investment and was looking for ways to boost consumer demand to support that investment.
The government would need 42 per cent growth in tax collections in the second half of the year to meet the budgeted target of 16.5 trillion rupees, Mr Pant said.
Net tax receipts in the first half of the current fiscal year ending in March 2020 were 6.07 trillion rupees, while total expenditure was 14.89 trillion rupees, the data showed.
"Had there not been one time windfall gain from the RBI (Reserve Bank of India), the fiscal deficit would have looked much worse," he said.
The central bank earlier this year agreed to transfer a much higher-than-expected dividend of 1.76 trillion rupees to the government.
In the six months through September, the pace of government spending has grown, with higher outlays on farm, social security and fuel subsidies.