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India to use revenue surge to fund welfare drives, not beat fiscal deficit target

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India will utilise a big bump in revenue collection to fund welfare programmes instead of trying to beat its fiscal deficit target or lower borrowing, two government sources told Reuters.

The country is set to exceed its 2020/21 revenue collection target of Rs 15.45 lakh crore ($207.77 billion), the first beat in four years, but a big chunk of the extra cash will go to a rural job programme and to provide free cereals to the poor.

The government is also likely to lose Rs 55,000 crore to Rs 60,000 crore in additional revenue after cutting fuel taxes this week to arrest runaway prices.

“Even after the cut in fuel taxes we should be able to exceed the tax collection target for the year but will use the funds for rural job programme and subsidies,” said one of the officials, both of whom declined to be identified talking about market-sensitive figures.

“Fiscal deficit and borrowing will be at the budget estimate levels.”

The finance ministry declined to comment.

Before the fuel tax cut, many economists had predicted India bettering its fiscal deficit target of 6.8% by 30-50 basis points for the year that ends on March 31.

Market participants had also expected the government to review its budgeted borrowing of Rs 12.055 lakh crore before starting discussions on its next budget to be presented on Feb. 1.

Prime Minister Narendra Modi’s administration is planning to top up its rural job-guarantee effort by up to Rs 30000 crore, said the second official, having used up Rs 73,000 crore allocated for the current fiscal year.

The government will also have to provide an additional Rs 50,000 crore each for its free food drive and an incentives programme for exporters, said the officials. The government has also approved Rs 40000 crore extra in fertiliser subsidies.
Friday, November 12, 2021 – 13:00

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