Sitharaman’s 3.3% deficit target is daunting, has many ifs & buts

By Aditi Nayar

The much-awaited post-election Budget for FY2020 has reiterated the government’s commitment towards fiscal consolidation and its priorities towards improving infrastructure, ease of living and doing business.

Contrary to our expectations, the overall fiscal deficit has been marginally reduced relative to the Interim Budget for FY2020 that was presented before the Parliamentary Elections. An expected cut in tax revenues has been offset by higher non-tax revenues and disinvestment proceeds, while the total expenditure allocation is largely unchanged from the level projected in the Interim Budget.

Additionally, an increase in the level of GDP estimated for FY2020, has resulted in the fiscal deficit now being projected at 3.3% of GDP for this financial year, compared with 3.4% of GDP as targetted in the Interim Budget.

As expected, the Government of India’s estimated tax revenue for FY2020 has been revised downward by around Rs 50,000 crore from the level projected in the Interim Budget, following the large shortfall in tax collections in FY2019. Despite this, the growth in tax revenue relative to the provisional figures for FY2019 released by the CGA remains significant at around 25%.

This may prove challenging to achieve despite the tax proposals made in the Budget, such as higher surcharges for certain categories of income taxpayers, enhanced duties and/or cesses on items such as petrol, diesel, gold and precious metals etc.

The realisation of dividends and surplus from the Reserve Bank of India (RBI), nationalised banks and financial institutions and public sector enterprises (PSEs), the revenues raised from the telecom sector, and disinvestment proceeds, will also be crucial to prevent a revenue slippage in FY2020.

Total dividends and surplus from RBI, nationalised banks and financial institutions and PSEs, has been projected to rise to Rs 1.6 lakh crore in FY2020 against Rs 1.2 lakh crore in FY2019 RE. The much-awaited recommendations of the Jalan Committee, which was appointed to review the economic capital framework for the Central Bank, with respect to the transfer of RBI’s surplus to GoI, may crucially influence the government’s collections from this source in the ongoing financial year.

Moreover, assuming no spectrum auctions, our estimate for non-tax revenue from telecom receipts in FY2020 is Rs 39,000-41,000 crore, compared with the revenues of over Rs 50,000 crore estimated in the Budget.

Disinvestment proceeds are projected at a substantial Rs 1.05 lakh crore for FY2020; the speed with which the disinvestment programme kicks off, as well as the interest shown by potential buyers in the PSUs being offered for strategic disinvestment, will be crucial to prevent a slippage relative to this target.

The Budget for FY2020 has clearly highlighted the government’s priorities, in terms of enhancing infrastructure, with a focus on connectivity, safe drinking water, power and agriculture; support to MSMEs, entrepreneurs, particularly women entrepreneurs and startups; labour reforms and wider social security through pensions.

Additionally, the proposals to boost FDI in certain sectors, permit FPI investment in companies up to the sectoral limit, deepen the bond markets, encourage investment by NRIs as well as retail participation in government securities, a jump in the capital to be provided to public sector banks and measures to support NBFCs are welcome steps.


The larger-than-anticipated capital support proposed for the public sector banks in FY2020 reiterates the government’s intent to bring them out of prompt corrective action as well as to provide them with growth capital. Early implementation and clarity on the contours of the proposed partial credit enhancement by the government for pools bought from NBFCs would aid liquidity flow to this sector.


The mild downward revision in the targeted level of the Government of India’s fiscal deficit for FY2020, combined with the proposal to raise a portion of the borrowings from external markets in foreign currencies, as well as the expectations of continued repo rate cuts and a benign outlook for global interest rates, will help to cap yields on Government of India securities in the near term. Regardless, the evolving trends for revenues and expenditures will be closely gauged to assess the likelihood of a fiscal slippage in FY2020.

(Aditi Nayar is Principal Economist, ICRA)