Despite Indian economy emerging as the fastest growing economy of the world and even surpassing China’s GDP rate of 6.7, when rest of the economies are facing an uphill drive, the targeted fiscal deficit of 3.3 per cent for 2018-2019 is likely to fizzle out.
Shortfall in GST collections, MSP hike overspend, hardening of crude oil prices in the international commodity markets and Ayushman Bharat spending are expected to jack up public expenditure this fiscal, even revenue is expected to take a hit.
Dwindling collections through the Community and Public Sector Union (CPSU) disinvestment drive as well as spectrum auctions, as usual, is expected to come as a damp squib and is set to upset the government’s applecart. Telecoms balance sheets are already in tizzy as Jio’s low tariffs war are already reeling under burgeoning CAPEX due to payment of high license fees of the DoT. Not to be forgotten the volatality in USD versus the Rupee is further expected to be the last nail in terms of higher cost of imports. To add to this, the impending global trade wars due to US President Donald Trump imposition of higher tariffs on imports from China as well as sanctions against Iran is anticipated to add a further twist.
With a major fanfare, the government has raised the MSP by 1.5 times in July. The MSP hike which normally comes in an election year is estimated to cost 10,000 to 35,000 crore more for the government this fiscal over the gross budgetary allotment. Ayushman Bharat is estimated to cost 6000 crore will add to fiscal tailspin. On the other hand, the estimated 80,000 crore through disinvestment of CPSEs is set to be a spoilsport as usual and an estimated 80,000 crore through spectrum auction is also in quandary. It may be recalled that PSUs stake sale of 25 per cent as advocated by SEBI for public shareholding-estimated to garner up 47,000 crore has already got an extension for two years and thus doesn’t bring much cheer.
A 5-month hike in June at 7 per cent in factory production is too an eyewash. Despite this, the fact remains that the factory output has been suffering given the high cost of funds in the market. This means that the indirect tax collection in terms of GST will be lower in the next
GST collections have in fact dwindled given the confusion and a constant amendment of the list of the tax brackets and goods. In fact, the latest figure of July wherein the GST collections touched 96,483 crore is too looked at with caution as the new tax regime was implemented in August a year back and is likely to subject to a low base effect. In fact, 1.81 lakh crore IGST refunds are pending with the centre as they are unable to disburse the amount to the constituent states. This has led to a loss to the government coffers of various states. The eWay system is said to have led states to voice concern which once again is leading to ‘inspector raj’ and leading to confusion at the district level of transportation.
The spectrum auction collection has always played truant. The exorbitant prices of spectrum particularly in the low frequency range of 800 Mhz continue as the reserve price has spoiled the applecart both for government as well the telecom sector. TRAI has been advocating spectrum prices based on the prices of 2016. It seems that TRAI didn’t learn from its past mistakes. The exorbitant prices of spectrum have led to it being unsold. As much as 38 per cent of spectrum since 2010 has remained unsold but it rose to 68 per cent in 2012 and 59 per cent in 2016. In a similar way, TRAIs move towards launching the 5G services in the country in the coming years is facing flak. TRAI is preparing for the 5G auctions in the coming years but as per industry pundits, it is likely to end in a fiasco-TRAI commitee on 5G is trying to fix a tariff of 492 crore per Mhz in as the reserve price for 3300 Mhz – 3700 Mhz band. At such a high cut off price, the first country to launch 5G in the world, South Korea, has failed.
Given these exigencies the fact remains that the election year is a time when the government tends to spend extra in terms of luring the vote-bank. This normally may add to the expenditure on many populist giveaways without thought to the effect on the government
exchequer throwing the fiscal prudence to the winds in the lure of votes.