3.8% fiscal deficit target looks ambitious: SBI Research

Mumbai: The revised 3.8 per cent fiscal deficit for FY20 looks ambitious as it is based on projected 18 per cent rise in tax collections against a paltry 5.1 per cent higher realisaition so far, and around Rs 65,000 crore mop-up through disinvestment in the last two months of the current fiscal, SBI Research said in a report on Sunday.

The revised deficit target is propped on the belief that the divestment will fetch Rs 65,000 crore through the next two months. As against the Rs 1.05 lakh crore budgeted target, the divestment proceeds has been one of the lowest in recent years at a paltry Rs 17,800 crore.

The Union Budget for 2020-21 used the permissible 50 bps deviation under Section 4(3) of the FRBM Act to widen the fiscal deficit at 3.8 per cent of the GDP, revealing a revenue shortfall of around Rs 2.60 lakh crore, of which states are losing Rs 1.09 lakh crore.

"After adjusting for the expenditure rationalisation of around Rs 88,000 crore, the revised fiscal deficit for FY20 comes to around Rs 63,086 crore over the budgeted numbers. The saving grace is the jump in non-tax revenue of around Rs 32,335 crore or 20 bps of fiscal deficit, possibly reflecting the AGR payments/interim dividend from RBI in lieu of telecom.

"Clearly, the Supreme Court judgement has helped the government contain fiscal deficit at 3.8 per cent instead of 4 per cent. If this amount goes up (potentially up to Rs 90,000 crore) the fiscal deficit number can even be lower than 3.8 per cent or alternatively it can be possible that any slippage in disinvestment receipts/tax receipts could be taken care of," SBI Research said in the report.

However, the problem is that the "revised estimates pegs income tax collections growing at 18 per cent as against 20 per cent budgeted earlier, which in our opinion, is a tad optimistic as the year-to-date FY20 collections as on December is only 5.1 per cent higher year-on-year," the report said.

The only saving grace has been for the second time in the fiscal after the April collections GST mop-up crossed Rs 1 lakh crore-mark at over Rs 1.2 crore. FY21 nominal GDP growth is projected at a reasonable 10 per cent, says the report and pegs real GDP numbers for FY21 to be 5.5-6 per cent and fiscal deficit at Rs 29,491 crore, more than the FY20 revised number of 3.5 per cent of GDP.

On the new income tax regime leading to a consumption boost, the report said that the new tax regime will most likely makes no sense as given the optionality clause wherein income tax rates will be significantly reduced for the individual taxpayers who forgo certain deductions and exemptions.