The risks of a large fiscal slippage in the current year are expected
to be addressed through larger non-tax revenues and the savings on
interest expenses, ratings and research firm Acuite said, adding
therefore, fiscal deficit in the current fiscal may remain limited to
3.5-3.6 per cent moderately higher by 0.2-0.3 per cent over the budgeted
Additional non-tax revenues, particularly disinvestment
profits, can be a key driver Acuite Ratings believes that there is still
a significant scope to limit India's fiscal deficit to 3.5-3.6 per
cent, if the government gives high priority to disinvestment and there
is a sustainable revival in consumption and market sentiment, expected
to be brought in by the sharp cut in corporate taxes up to 10 per cent,
over the next two quarters.
The government is already working on
the disinvestment of a few large public sector companies and if the
equity markets respond well to the efforts made to revive economic
growth, the government may succeed in exceeding the disinvestment target
of Rs 1.05 lakh crore, said the report.
further suggests that over and above the use of the escape clause under
the FRBM Act, which permits an additional 0.2 per cent slippage, any
sharp increase in the fiscal deficit triggered by the liberal corporate
tax cuts can be offset by the special dividend from RBI, additional
non-tax revenues brought about by the cuts and a likely reduction in
interest obligations due to larger rate reductions by RBI than expected
in the budgetary figures.
Surely, the cut in base corporate taxes
from 30 per cent to 22 per cent for existing companies and for new
manufacturing companies at 15 per cent is expected to spur a revival in
the economy, which has recorded one of the slowest rates of growth over
20 years in Q1FY20, it added.
Acuite Ratings said the corporate
tax rationalization measures along with the ongoing accommodative
monetary policy of RBI should help to boost corporate savings and
translate into higher demand as also a pickup in private sector
investments over the medium term. However, such economic advantages
notwithstanding, the booster package comes at a cost to the fiscal
While the government has estimated that it will have
to forego Rs 1.45 lakh crore of tax revenues, the actual shortfall may
be even higher in the context of weaker consumption and lower indirect
tax revenues than the budgeted figures. The market, therefore,
anticipates a significant slippage in the fiscal deficit from the
proposed 3.3 per cent to a figure closer to 4.0 per cent, the report
Acuite however, believes that the fiscal position can be
significantly better than what the fiscal mathematics suggests if there
is a focus on augmenting non-tax revenues. Already, there has been a
windfall gain of Rs 59,000 crore over and above the budgeted Rs 90,000
crore dividend income from RBI in the current fiscal.
government has an aggressive disinvestment target of Rs 1.05 lakh crore
in the current year; this can be exceeded if the government targets the
disinvestment of large and profitable PSUs such as the oil companies
over and above the planned ones such as Air India.
Clearly, such a
disinvestment programme has to scout for interested global players who
may be keen to make an entry into India, thereby translating into
big-ticket foreign investments, the agency said. Further, non-tax
revenues such as dividend and dividend taxes should witness an uptick in
the current year.
With higher post-tax profits, PSUs are
expected to declare higher dividends and the government should also gain
from higher dividend taxes from improved private sector profits and
dividends. Acuite expects such additional inflows in the order of Rs
Our calculations further indicate that the
government will be able to save on interest expenses to the extent of
another Rs 59,000 crore given the lower bond yields and an expectation
that yields will go further lower as inflation continues to sustain at
moderate levels, Acuite said.
All the above figures add up to
around Rs 1.5 lakh crore, which potentially can address the tax
shortfall to almost the entire extent or at least up to 80 per cent of
that amount. What is also interesting is the fact that the government of
India has the option of using FRBM Act's escape clause. The clause can
be triggered in special circumstances, it said.