Former Secretary of India's federal finance ministry, Subhash Chandra Garg, who resigned over his differences with Modi's financial advisory body last year, has said it is time for India to come clean on its fiscal deficit numbers.
For the financial year 2019-20 (April 2019 – March 2020), India's finance ministry budgeted for a fiscal deficit of 3.3 per cent of Gross Domestic Product (GDP). A budgetary deficit is the difference between the total government revenue and total government expenditure.
"The deficit is much larger than what is stated in the budget papers. Over the years, in the interest of sticking to the fiscal deficit glide path, some liabilities have been shifted out of the budget. This is the time to come clean and bring the off-budget borrowings into the budget," Garg said.
India's federal finance minister Nirmala Sitharaman will present the budget proposals for the financial year 2020-21 on 1 February. According to government data, the fiscal deficit breached the budgeted target in November.
Blaming tax performance, Garg said India's fiscal deficit might widen to 3.7 per cent to 4 per cent of the GDP. "Actual tax performance has been quite poor. In this, major policy decisions by the government to reduce corporate tax rates have also contributed. Personal income taxes are also growing at a very low rate. Goods and Service Tax (GST) revenues are also not very robust," Garg said.
The former bureaucrat expressed doubts about the federal government's disinvestment target of $14.08 billion for 2019-20 and said only 20 per cent of the target had been achieved.
"Taking all these on board, it would be fair to expect the headline fiscal deficit to go up by $18.30 billion to $28 billion, which is 0.6 per cent to 1 per cent of GDP. The fiscal deficit number, therefore, is likely to be between 3.7 per cent and 4 per cent of GDP," he added.
Garg opted for voluntary retirement after his proposals on raising global sovereign debt did not find favour with the Prime Minister's Office. The plan was opposed by the Prime Minister's Economic Advisory Council saying that exposing India to global risks may impact the economy in the future. Garg was accused of "not holding enough consultations" on the matter before getting it incorporated into last year's budget.
India has been experiencing what has widely been perceived as an economic slowdown, which was triggered mainly by a liquidity crunch in the financial sector, which in turn, choked investments.
India's Gross Domestic Product (GDP) touched a six-year low at 4.5 per cent in July-September 2019 against 5 per cent in April-June 2019. The Indian government has also lowered the growth forecast for the current financial year to 5 per cent compared with 7 per cent projected earlier.