India is set to miss the fiscal bus

Mumbai / New Delhi: As the exuberance of stock market and corporates over the tax cuts settles downs, economists and experts warned of slippages that may impact fiscal deficit, capital expenditure and result in higher borrowings.

While announcing the booster measures, Finance Minister Nirmala Sitharaman side-stepped all questions on fiscal deficit. The budget had pegged fiscal deficit at 3.3 percent of the GDP for FY20 and the government has already crossed 77 percent of that in the first four months.

Incidentally, the measures have come a day after the RBI Governor said the government does not have any fiscal room for initiating growth-friendly measures.

Considering the slowdown, chances are high that the government might miss the fiscal deficit target for FY20," Deepthi Mathew, an econo-mist at the domestic brokerage Geojit Financial Services, said.

Both the GST and direct collections have been disappointing. In early September, direct taxes were growing at 5 per cent, as against a budgeted growth rate of 17.3 per cent.

GST collections are also growing at 6 per cent, against a required growth rate of 15 per cent to achieve the FY20 budget estimates.Officials say the government needs to collect Rs 1.10 lakh crore to Rs 1.13 lakh crore a month to stay on course on GST collections, which hasn't been the case at all so far.

Though the positives are not to be discounted, economists said the corporate tax cut will not lead to any consumption demand but may create some investment demand. So, one part of the demand story is taken care of.

But for consumption demand to rise, ministries should front-load their expenditures, particularly in rural development ministry which has huge allocation on road, housing, etc.

"We expect the announcement to provide a big boost to business sentiment in the immediate term, with a modest impact on consumption demand, particularly for big ticket items. However, the impact on fresh investment activity may be visible with a lag.

Nonetheless, in one swift move, the government has changed the narrative from hand-wringing over economic growth and the lack of job creation to telling the industry "we have done what was expected of us, now do yours". Therein lies the crux of the issue.

Had the tax cuts come when the Union Budget was announced in July, when expectation from the Modi 2.0 government was high, the results would have been different.

Coming at a time when economic growth has petered down to 5.0% in Apr-Jun from 5.8% in the previous quarter, the move could give rise to phantom fears that the emerging situation could be more grave than anticipated. More because this is a government headed by a leader known for being savoir faire.

By ANJANA DAS

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