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

Professor of Financial Economics and Part-time Value Investor, Transfin.
Jan 7, 2020 10:43 AM 2 min read
Editorial

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.

FIN.

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