“Based on the current trend in GDP and tax-/non-tax revenue growth, we believe adhering to the fiscal deficit target at 3.4 percent will be difficult without squeezing expenditure,” India Ratings said in a note Friday. It can be noted that government expenditure has been one of the biggest drivers of consumption growth and in turn aided the growth process in the last few years, when private investments have been lacklustre.
The report also raised concerns on the off-balance sheet borrowings by the government, stating while such moves help contain fiscal deficit closer to the glide path, but is an “expensive way of mobilising resources”. It said the fiscal consolidation must continue in line with the fiscal road map laid out earlier.
In FY19, general government (both Central and states) fiscal deficit at 6.9 percent was much higher than Fitch-rated ‘BBB’ peer group’s median of 1.9 percent, it pointed out. Similarly, government debt at 69 percent of GDP was 1.84 times that of ‘BBB’ rated peer group’s median, it said.
It said it would be “interesting” to look at the steps the budget would announce to expand the tax base and resolve the tax revenue currently in disputes, and added that tax laws continue to be complex even after attempts at simplification. On taxation, it pitched for a new direct tax code to simplify tax legislation, remove exemptions and widen the tax base to be included in the budget proposals.
The budget needs to come up with a five-year roadmap on tax reforms especially for corporates, the agency said. Clarity on capital infusion in the public sector banks, removal of the roadblocks that have crept into the bankruptcy laws, and encouraging/incentivising banks to buy good quality assets of NBFCs, will go a long way in easing the current woes of the financial sector and reviving the private corporate/non-corporate capex, it said.
There is a need to look at agriculture beyond food security alone if we were to find a solution to the agrarian crisis, it said, advocating direct transfers in the interim.