Govt. plans to cut spending by ₹2 lakh crore to curb deficit

Lack of demand and weak corporate earnings growth in the economy led to lagging tax collections which has resulted in a revenue shortfall of about ₹2.5 lakh crore.

Published - January 07, 2020 02:19 pm IST - New Delhi

Picture for representational purposes.

Picture for representational purposes.

India's government is likely to cut spending for the current fiscal year by as much as ₹2 lakh crore as it faces one of the biggest tax shortfalls in recent years, three government sources said.

The economy, which is growing at its slowest pace in over six years because of lack of private investment, could be hurt further if the government cuts spending.

But with a revenue shortfall of about ₹2.5 lakh crore, the government has little choice to keep its deficit within “acceptable limits”, the first official, who did not want to be named, told Reuters.

The government has spent about 65% of the total expenditure target of ₹27.86 lakh crore till November but reduced the pace of spending in October and November, according to government data. A ₹2 lakh crore reduction would be about a 7% cut in total spending planned for the year.

In October and November, government spending increased by ₹1.6 lakh crore, nearly half the 3.1 lakh crore it spent in September. The fiscal year starts April 1 and ends March 31.

Lack of demand and weak corporate earnings growth in the economy led to lagging tax collections this year. Analysts said growth will be hurt.

“When the private investment has slowed so much, this will definitely drag down growth further,” said Rupa Rege Nitusure, chief economist at L&T Financial.

India's economic growth slowed for six consecutive quarters to 4.5% in July-September, despite a 135-basis-point cut in interest rates by the central bank since February 2019.

Now, even the Reserve Bank of India seems to have become more worried about inflation rising. It kept its key lending rate on hold on December 5, even though it slashed its growth forecast for the current fiscal to 5%, which would be the lowest in a decade.

Even a surprise corporate tax rate cut announced by Finance Minister Nirmala Sitharaman earlier this year failed to spur private investment in the economy.

The government is likely to keep the fiscal deficit under 3.8% of gross domestic product, sources said, while letting it slip from its earlier set target of 3.3% for the year.

The government is likely to announce additional borrowing of ₹30,000 crore to ₹50,000 crores for the current year to match the revised fiscal deficit, two sources in the government said.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.