The government has shifted a massive amount of the food subsidy cash outgo for FY20, to almost fully financing it from the NSSF or the National Small Savings Fund, which doesn’t reflect in the fiscal deficit.
The government projected a massive food subsidy of Rs 1.84 lakh crore in July budget for this fiscal. But the revised estimates presented on February 1, show a deep cut of Rs 76,000 crore in the food subsidy, bringing it down to Rs 1.08 lakh crore. Instead, the revised estimates also show a massive Rs 1.10 lakh crore worth of financing of the food subsidy by the small savings fund.
Expenditure Secretary TV Somnathan told CNBCTV18 the food subsidy has not been compressed or cut but instead the financing is being done by the NSSF, which is not counted in the calculation of the fiscal deficit.
It’s also to be noted that the FY20 expenditure budget has seen a reduction of Rs 88,000 crore. And a large chunk of this compression has been possible due to the government reducing the cash outgo on food subsidy to the tune of Rs 76,000 crore and instead shifting the financing of this amount, through loans against the small savings fund.
Off-budget spend
This is the first time the government has explicitly mentioned the estimates of funding of food subsidy via small savings. Last year the government for the first time revealed the Extra Budgetary Resources raised by the PSUs to fund the government’s spend on social sector schemes, which CNBCTV18 had exclusively highlighted on July 18, barely two weeks after the July budget.
Including the NSSF support for food subsidy, the government has estimated a total EBR, also called off-budget funding, of Rs 1.76 lakh crore for this fiscal. The off-budget spend for FY21 has been estimated at Rs 1.86 lakh crore.
Despite these massive exercises on fiscal balancing, the government deviated from the fiscal deficit target by 0.5 percent of the GDP to 3.8 percent forcing it to use the escape clause under FRBM for the first time, not just for this fiscal, but also for FY21 where the fiscal deficit target is pegged at 3.5 percent.
And the reason for this fiscal fall is not far to find:
Reason behind the 3.8% fiscal deficit: Tax revenue shortfall close to Rs 2.70 lakh crore in FY20 budget estimates
The government will miss its FY20 budget estimates for tax revenues by an unprecedented Rs 2.70 lakh crore, almost 1.3 percent of the GDP.
The three largest components of this slippage are corporate taxes, excise and customs.
The FY20 revised estimates show a corporate tax collection target of Rs 6.10 lakh core against the original Rs 7.66 lakh crore budgeted by the government in July.
FY20 excise revenues are estimated to fall short by Rs 52,000 crore against the Budget Estimate of Rs 3 lakh crore. Revised excise collections are pegged at Rs 2.48 lakh crore.
While FY20 customs collections are projected to fall short by Rs 30,000 crore against the budget estimate of Rs 1.55 lakh crore. Revised estimates for customs are set at Rs 1.25 lakh crore.
FY20 GST shortfall is estimated at Rs 23,000 crore with CGST estimated to fall short by Rs 12,000 crore, compensation cess projected to fall short by Rs 10,000 crore.
Tax shortfall
Significantly, the budget estimate of Rs 28,000 crore set for IGST in FY20 has been removed from the Receipts Budget. Government officials explained to CNBCTV18, from the current fiscal onwards IGST collections will not be a part of the receipts budget of the Centre as this has been a bone of contention in the GST Council, with states having objected to this money coming into the Consolidated Fund of India and getting devolved as per the 42 percent devolution formula between the Centre and states.
As per law, IGST revenues are to be equally shared in a 50:50 ratio between the Centre and states, and not under the Finance Commission tax devolution of 42 percent, which puts the states at a loss. Henceforth, the GST receipts budget for the Centre will not have an IGST collection target, as is shown in the FY20 RE and the FY21 BE of the Receipts Budget.
While a large part of the shortfall, particularly on indirect taxes, is being attributed to the economic slowdown, like the customs and excise revenues, the corporate tax revenue shortfall has also been attributed to tax cuts announced by the government in July.
