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Controlling fiscal deficit amidst financial troubles to be a big challenge for the Modi Government

Friday - November 8, 2019 2:21 pm , Category : BUSINESS
The fiscal deficit may increase due to several reasons
The fiscal deficit may increase due to several reasons

Economic slowdown brings another tough challenge to the Modi Government

NOV 08 (WTN) - The global economic slowdown has affected the Indian economy to a great extent. According to the International Monetary Fund, the economic slowdown has in some way engulfed 90 percent of the world's economies. The economic slowdown has had an impact on fast-growing economies like India and Brazil. The impact of the economic slowdown can be seen in almost every sector, from the auto sector to the textile sector. For this reason, several financial institutions in India, including many global financial institutions, and the Reserve Bank of India, the central bank of India, have lowered the GDP growth estimate for the current financial year. 

Amidst all this, there is an apprehension that the economic slowdown may affect India's fiscal deficit and it may be more than anticipated. Fitch Solutions, a company that advises on various issues including financial risk aversion, has made an important point about India's fiscal deficit which could be a cause of concern for the Modi Government. 

At first, you must be wondering about the fiscal deficit after all. So for your information, we explain to you about the fiscal deficit, in fact, the government of any country collects revenue only through tax. Apart from raising revenue, the government also spends. But due to the public welfare concept, the total expenditure of the governments of developing countries like India exceeds its total revenue. In such a situation governments have to borrow an additional amount from the market. This amount that governments borrow is equal to the fiscal deficit. That is, the difference between the total earnings and expenditure of a government is called the fiscal deficit. 

In its estimate on India's fiscal deficit, Fitch has said that the fiscal deficit for this current fiscal year is higher than before. Fitch Solutions says that the fiscal deficit in the current financial year 2019-20 can be 3.6 percent of the GDP. Fitch had earlier estimated the fiscal deficit to be 3.4 percent of GDP. Fitch has increased India's fiscal deficit by 0.2 percent in its estimation, which means that if it proves to be true, it will increase the burden on the exchequer of the Government of India. 

This was Fitch's estimate of the fiscal deficit. On the other hand, in the first full budget of its second term presented by the Modi Government at the Center on July 5, it was estimated to limit the fiscal deficit to 3.3 percent for the current financial year. For your information, let us know that the fiscal deficit of the Government of India was Rs 6.45 lakh crore in the financial year 2018-19.

You may be wondering about the reason that the fiscal deficit estimate has been raised for the current financial year. So for your information, let us know that there are many reasons behind raising the fiscal deficit estimate, such as the GDP affected due to economic slowdown, the continued decline in GST collection and the loss of revenue collection due to the reduction in the corporate tax rates. For all these reasons, it is believed that the fiscal deficit may increase in the current financial year.

As we have told you earlier, due to the global economic slowdown, there has been a lot of negative impact on the work of industries and services sector, due to which the growth rate is said to be affected in the current financial year. At the same time, the GST collection is also falling short of the government's expectation. For your information, let us know that the GST collection for the month of October has remained below Rs 1 lakh crore. According to the data released, the GST collection has fallen to 95,380 crores in October. This is the third consecutive month when the GST collection has been below Rs 1 lakh crore.

At the same time, to give relief to domestic companies from the economic slowdown, the government has reduced the rate of corporate tax to 22 percent from 30 percent. It is estimated that the decision of the Central Government may lead to a loss of revenue of about Rs 1.45 lakh crore. Fitch has also revised down its estimate of revenue growth from 13.1 percent to 8.3 percent, much lower than the government's 13.2 percent budget estimate.

It is clear that due to all these reasons, the fiscal deficit is projected to increase in the current financial year. This means that the government's revenue receipts in the current financial year may be lower than anticipated and due to rising expenditure, the government may have to borrow more than anticipated, due to which the expenditure may increase due to higher expenditure than the revenue collected. Now it has to be seen whether Modi Government is able to control the fiscal deficit amidst economic slowdown, low GST collection, and other financial troubles?

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