Covid setback: India’s fiscal deficit touches 83.2% of annual target in April-June quarter

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NEW DELHI: The government’s tax revenue fell 32.6% in the April-June quarter, underscoring the damage done to the economy by the Covid-19 pandemic and the lockdown that followed. The revenue shortfall widened the fiscal deficit at the end of June to Rs 6.62 lakh crore, or 83.2% of the full-year budget estimate of Rs 7.96 lakh crore. This is the highest fiscal deficit in percentage terms for the first quarter going back to available data since FY1999.

The central goods and services tax (GST) took the maximum 53% knock, data released on Friday showed, suggesting extreme consumer distress or caution, experts said. This points to a steep cut in June quarter GDP, with SBI Research estimating a 40% contraction. First-quarter GDP estimates will be released on August 31. The flagging collections have forced the government to raise the amount it’s borrowing this fiscal to a record Rs 12 lakh crore to meet spending needs. However, the contraction in gross tax revenue narrowed to 23% in June, suggesting some pickup in the economy after restrictions were eased in stages from May.

The central GST decline for June was 14.8%. “The pace of contraction in the gross tax revenues has narrowed to 23% in the month of June 2020 from the dismaying level of 41% seen at the end of the previous month, in line with our assessment of some recovery in economic activity during the unlock phase,” said ICRA principal economist Aditi Nayar. “The government’s fiscal deficit has expanded by a sharp 53.3% on a YoY basis in Q1FY2021, and now stands at 83% of the budget estimate for this fiscal, reinforcing the challenges posed by the ongoing crisis to fiscal management.”

Corporate tax collections were down 23.2% in the quarter from a year ago while income tax collections declined 36% amid pay cuts and job losses due to the lockdown. There was marginal improvement in June in personal tax with collections lower by 27%. Total government expenditure in the first quarter was in line with the trend at 26.8% of the budget estimate for FY21 against 25.9% in the year earlier. This suggests there is no sharp rise in government spending as of now to counter the impact of Covid-19 and the fiscal stress is largely because of the lower revenues, experts said.





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