India Plans to Cut Spending to Curb Fiscal Deficit, Ministries Likely to Suffer Spending Squeeze

India plans to cut spending to curb fiscal deficit. Ministries likely to suffer spending squeeze. GDP advance estimates see GDP growth for FY19-20 at 5%.

 

POLICY MATTERS

India plans to cut spending to curb fiscal deficit.

We Don't Spend Anymore: The government will reportedly reduce spending for the current fiscal to curb the deficit as it battles a major tax shortfall, decreasing private investment, and the slowest GDP growth in six years.

 

The spending squeeze could be as much as ?2tr ($27.82bn), which would be a c. 7% cut in total spending planned for the year.

 

India Plans to Cut Spending to Curb Fiscal Deficit, Ministries Likely to Suffer Spending Squeeze

 

Meanwhile, the revenue shortfall stands at around ?2.5tr ($34.71bn). As of November 2019, the gap between the government's revenue and spending was already 13% higher than the full-year target.

 

And the initial fiscal deficit target was 3.3% of GDP; this was missed and now the government is looking to keep it under 3.8% for the year. Additional borrowing of ?3,000-5000cr could also be announced to match the revised fiscal deficit. ET Indicators

 

Ministries likely to see spending squeeze.

Lock Your Wallets: Last month, the Department of Economic Affairs asked government departments to spend only 25% of their yearly allotted amount in the January-March quarter. The norm is 33%. The difference between these two percentage figures amounts to ?2.23tr ($30.96bn), which is what the government is seeking to compress with its spending cuts.

 

What does this mean? Maintaining deficit targets will be a squeeze on individual departments and ministries. This is particularly bad news for those that haven't yet spent much of their initial allocations.

 

The Agriculture Ministry, for example, has spent 49% of its budgeted expenditure as of November-end (last time, this figure was 70%). Assuming it spent 60% of its budget till December-end, it won't be able to utilise all of the remaining 40% till March because of the Finance Ministry's 25% cap. BS

 

GDP advance estimates see GDP growth for FY19-20 at 5%.

This Just In: The first advance GDP growth estimates for the 2019-20 fiscal were released by the Statistics Ministry today. As per the data released, India’s GDP growth during FY19-20 is expected to be 5% as compared to 6.8% a year ago. Click here to read details.

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