Facing Tax Shortfall, India To Cut Government Spending For Current Fiscal

Publish Date: 07 Jan, 2020 05:33 PM   |   Arnima  

New Delhi: Facing one of the biggest tax shortfalls in recent years, Indian government is likely to cut spending for the current fiscal year. According to government sources, the Centre could cut spending for the current fiscal year by as much as 2 trillion Indian rupees.

The financial experts said, "Asia's third largest economy is growing at its lowest pace. In over 6 years this is the slowest progress of the nation and it is a result of lack of private investment."

The experts are of the view that it could hurt the Indian government if it cuts spending but with the revenue shortfall of about 2.5 trillion rupees, the Centre has a little choice to keep its deficit within acceptable limits and thus the decision to cut government spending is the only option left.

The government data says, India has spent about 65% of the total expenditure target or 27.86 trillion rupees till November. It, however, reduced the pace of spending in October and November but a 2 trillion rupee reduction has been planned for the year by the Indian government.

This reduction would be about 7% cut in the total spending. In October and November 2019, government spending had increased by 1.6 trillion rupees which was nearly half the 3.1 trillion it spent in September. To be mentioned that the fiscal year starts on April 1 and ends on March 31.

The economists are of the view that lack of demand and weak corporate earnings growth in the economy has led to low tax collections in 2019 which is the major reason for growth being hurt. Even the Reserve Bank of India is worried about inflation rising and has kept its key lending rate on hold for the current fiscal, making it the lowest growth in a decade.

Indian economy has grown on the slowest pace for six consecutive quarters despite a 135 basis points cut in interest rates by the central banks in February 2019. Taking this in view the government would most likely to keep the fiscal deficit under 3.8% of Gross Domestic Product.

Indian government could also announce additional borrowing of 300 billion to 500 billion rupees for the current year to match the revised fiscal deficit.