We have reduced rates, but the goals cannot fail, the government tells taxpayers

NEW DELHI: The finance ministry has presented a challenge to its revenue collectors: meet fiscal goals despite $ 20 billion of corporate tax cuts .

Through a videoconference on December 16, officials were urged to meet the direct fiscal cleanup objective of Rs 13.40 billion rupees ($ 187 billion), a government official told reporters. Collection in the eight months to November grew 5% over the previous year, compared to the desired 17%.

The letter shows the urgent need of Prime Minister Narendra Modi to boost public finances in a decelerating economy where tax collections from April to November were half the amount budgeted. The authorities withheld some payments to the states and limited the expenses of the ministries as the fiscal deficit soared beyond the target.

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Government efforts to maintain its deficit target go against the advice of some sectors, including central bank governor Shaktikanta Das, who urged more spending to stimulate economic growth.

However, it is not clear how much space the Modi administration has to increase expenses, since it may already be borrowing up to Rs 54,000 crore through state companies, a figure that is not reflected in the balance sheet of the Center. Uncertainty about public finances increased sovereign returns in November and December, forcing Das to announce unconventional policies to keep costs under control.

This is not a time to hide the fiscal deficit through out-of-budget loans or deferring payments, said Indira Rajaraman, an economist and former board member of the Reserve Bank of India. If you stick to the objective, that would be catastrophic because there is a lot of priming of the pump that is needed at this time.

India's gross domestic product (GDP) grew 4.5% in the quarter ended September, the slowest pace in more than six years, as both consumption and investments cooled in the third largest economy of Asia. Only government spending supported the expansion, building pressure on Modi to keep it stimulating.

S&P Global Ratings warned in December that it could lower India's sovereign ratings if economic growth does not recover.

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Government support seems to be declining now, and ministries should limit spending in the last quarter of the financial year to 25% of the budgeted amount instead of the 33% previously allowed. This new rule will affect the hamstring sectors, including agriculture, aviation and coal, where not even half of the annual targets have been disbursed.

As the central government runs out of money, it has delayed payments to state administrations. Private hospitals have threatened to suspend services without cash to government employees for non-payment of fees, while a builder informed the stock exchange about delayed rental payments of no less than the office itself of taxes.

India is considering a dispute resolution plan that will allow companies to get out of persistent tax disputes by paying a portion of the money demanded by the government, a newspaper reported on Saturday. The measure will help improve the ease of doing business in addition to unlocking a portion of the nearly 8 million rupees (111 billion rupees) caught in these disputes. The step, which is being considered as part of the annual budget, could also close India's fiscal gap.

Finance Minister Nirmala Sitharaman has refused to comment on the deficit target before the official presentation of the budget that expires on February 1.

A deviation from the objective, if any, should be balanced with a credible consolidation plan beyond, said Radhika Rao, an economist at DBS Group Holdings Ltd in Singapore.