Shadow on fiscal health, but a harder test next year
The Minister of Finance, Nirmala Sitharaman, made use of an amendment to the Fiscal Responsibility and Budget Management Law, passed two years ago, to exceed her fiscal target of 3.3% of GDP for 2019-20 by half a percentage point. The next financial year is expected to see a reduction in the fiscal deficit to 3.5% of 3.8% for the current year.
A combination of a mid-year reduction in the corporate tax rate and mediocre GST collections on the heels of a slowdown in economic momentum resulted in government exceed your fiscal deficit target. It is likely that the next financial year will also be a challenge.
The budget has been built on a growth base of 10% of nominal GDP at Rs 224.89 lakh crore in 2020-21. However, gross tax collection is expected to grow 12%. But the most prominent feature on the receipt side is the objective of Rs 2.10 lakh crore, a jump of 223%.
It is likely that the key divestment exercise is that of Life insurance corporation . A Budget document expects that the profits from the sale of shares of the banks and financial institutions of the PSU will be Rs 90,000 million. This sale will more than compensate for the expected drop in surplus transferred by Reserve Bank of India .