Fiscal Deficit Spinning Out of Control, Reaches 134% of Modi Govt’s Target for FY 2018-2019
Current Account Deficit also increased to 2.6 per cent of GDP during the April-December 2018 period.
Mumbai/New Delhi: The country’s current account deficit widened to 2.5 per cent of GDP in the third quarter of the current fiscal from 2.1 per cent a year ago, primarily on account of a higher trade deficit though the foreign exchange reserves continued to soar.
Meanwhile, the data released by the Controller General of Accounts (CGA) revealed that the central government’s fiscal deficit — gap between expenditure and revenue receipts — had crossed 134 per cent of the whole year of the revised budget estimates (RE) at February-end.
Releasing the data on balance of payments, the Reserve Bank said that in absolute terms, the CAD or the gap between inflow and outflow of foreign exchange in the current account was USD 16.9 billion in October-December 2018, up from USD 13.7 billion in the year-ago period.
The deficit, however, had moderated to USD 19.1 billion or 2.9 per cent of GDP in the preceding quarter (July-September).
“The widening of the CAD (current account deficit) on a year-on-year basis was primarily on account of a higher trade deficit at USD 49.5 billion as compared with USD 44.0 billion a year ago,” the RBI said in a statement.
CAD increased to 2.6 per cent of GDP during the April-December 2018 period, from 1.8 per cent in April-December 2017 on the back of widening of the trade deficit.
Portfolio investment recorded net outflow of USD 2.1 billion in third quarter of 2018-19 as compared with an inflow of USD 5.3 billion in corresponding period of last year on account of net sale in the equity market, the RBI said.
Another set of RBI data showed India’s foreign exchange reserves continued to surge for the third week in a row, adding USD 1.029 billion at USD 406.667 billion in the week to March 22.
Forex reserves had increased by USD 3.6 billion to USD 405.6 billion in the previous reporting week driven by an increase in foreign currency assets.
For the reporting week, foreign currency assets — a major component of the overall reserves — increased by USD 1.031 billion to USD 378.805 billion, the RBI said Friday.
Expressed in the greenbacks, foreign currency assets include the effect of appreciation/depreciation of non-US units like the euro, pound and the yen held in the reserves.
The reserves had touched a life-time high of USD 426.028 billion in the week to April 13, 2018. Since then, the reserve kitty has been sliding as the rupee came under pressure.
But since March this year it has been increasing on the back of rising foreign investors’ play in domestic equities.
As regards the fiscal deficit data for April-February 2018-19, the CGA said it stood at Rs 8.51 lakh crore as against the revised estimate (RE) of Rs 6.34 lakh crore for the entire year.
In percentage terms, the deficit was 134.2 per cent of the full-year RE. Revenue receipts of the central government were Rs 12.65 lakh crore or 73.2 per cent of the revised budgetary estimate (BE) at February end. In the same period last fiscal, the revenue collection was 78.2 per cent of the estimates.
The government’s tax revenue stood at Rs 10.94 lakh crore and non-tax revenue was Rs 1.7 lakh crore.
Total expenditure incurred by the government during April-February 2018-19 was Rs 21.88 lakh crore (89.08 per cent of RE), of which Rs 19.15 lakh crore was on revenue account and Rs 2.73 lakh crore on capital account.
While there are apprehensions that the government may breach the fiscal deficit target, Economic Affairs Secretary Subhash Chandra Garg exuded confidence that target of 3.4 per cent of the GDP for the current fiscal would be met.
Commenting on the CGA data, Devendra Kumar Pant, Chief Economist, India Ratings and Research said slow pace of tax collection would keep pressure on fiscal deficit.
A higher GDP number than the one used in budget will help government move closer to FY19 fiscal deficit at 3.4 per cent of GDP, he added.
The finance ministry also announced the government’s market borrowing programme through dated securities and treasury bills for the first half of the next fiscal beginning April 1.
Gross borrowing in the first half of the 2019-20 fiscal has been pegged at Rs 4.42 lakh crore.
The remaining Rs 2.68 lakh crore or 37.7 per cent of the total gross borrowing would be raised from the markets by floating government bonds and treasury bills during October-March period.
The net borrowing in the first half (April-September) would be Rs 3.40 lakh crore. The second half net borrowing would Rs 1.33 lakh crore due to a buyback of Rs 50,000 crore.