A man counts Indian currency notes inside a shop in Mumbai, India. Reuters
Ratings agency Moody’s Investors Service has projected India’s fiscal deficit to be about 3.7 per cent of the gross domestic product (GDP) in 2019-20, which will be slightly wider than the 3.4 per cent posted in fiscal 2019.
The government has kept a fiscal deficit target of 3.3 per cent of the GDP for 2019-20.
The agency, in a report, said the persistent spending pressures and slower economic growth will result in continued widening of the fiscal deficit.
“At fiscal year-end March 2020 (fiscal 2020), we project government deficit will be about 3.7 per cent of gross domestic product (GDP) for the Central government and around 3 per cent for states, adding up to a general government deficit of about 6.7 per cent,” the report said.
In the report, the agency cited that large fiscal deficits of some state governments will also constrain Centre’s medium-term consolidation goals.
According to the agency, Indian states, which do not generate sufficient revenue sources for their spending needs, remain dependent on Central government’s grants. These states have recorded larger deficits in recent years.
“The introduction of the GST replaced many indirect taxes previously levied by the states, reducing the share of own source revenue in their total revenue. As a result, states now rely on the Central government or the GST Council for a majority of their revenue, with variations across states,” the report said.
“Moreover, GST revenue has been below expectations since its launch, though the Central government has agreed to compensate states for any revenue shortfalls due to the GST for five years.”
States’ gross borrowing needs are budgeted at Rs 7.5 trillion ($104 billion or 3.4 per cent of the national GDP) for fiscal 2020, a 28 per cent increase over fiscal 2019. levels.
Meanwhile a sharp fall in import of petroleum products reduced India’s October merchandise trade deficit to $11.01 billion from $18 billion reported for the corresponding period of 2018.
Similarly, global slowdown amidst weak domestic demand dipped India’s merchandise exports on a year-on-year basis.
As per the data furnished by the Ministry of Commerce & Industry, October exports were marginally down to $26.38 billion from $26.67 billion reported for the corresponding period of the previous year.
However, on a sequential basis, exports were higher than $26.03 billion worth of merchandise that were shipped out in September.
The data showed that shipment of ‘electronic goods’ grew by 38.42 per cent, followed by other categories such as ‘drugs and pharmaceuticals’, ‘gems and jewellery’, ‘engineering goods’ and ‘organic and inorganic chemicals’.
“Non-petroleum and non-gems and jewellery exports in October were $19.04 billion, as compared to $18.93 billion in October 2018, exhibiting a positive growth of 0.59 per cent,” the ministry said in a statement.
On the other hand, imports declined by 16.31 per cent to $37.39 billion in October from $44.68 billion reported for the corresponding month of 2018. “Oil imports in October 2019 were $9.63 billion, which was 31.74 per cent lower in dollar terms, compared to $14.11 billion in October 2018,” the ministry said.
“Non-oil imports in October 2019 were estimated at $27.76 billion which was 9.19 per cent lower in dollar terms, compared to $30.57 billion in October 2018.”
The data revealed a drastic fall in the inbound shipments of ‘petroleum, crude and products’ by 31.74 per cent, followed by ‘coal, coke and briquettes, etc.’, ‘transport equipment’, ‘electronic goods’ and ‘machinery, electrical and non-electrical’.
Non-oil and non-gold imports declined by 10.04 per cent to $25.92 billion in October 2019 from $28.82 billion in October 2018.
Consequently, the trade deficit in October narrowed to $11.01 billion on a year-on-year basis.
“The sharp slide in the merchandise trade deficit in October 2019 relative to October 2018 was primarily driven by a considerable reduction in imports of petroleum products, led by both prices and volumes, as well as various industrial inputs, and some consumer items,” said Aditi Nayar, Principal Economist, ICRA. “Non-oil, non-gold merchandise imports recorded a substantial 10 per cent reduction in October 2019, driven by a variety of items, including industrial inputs such as iron and steel, coal, minerals and ores, and metals, as well as items such as transport equipment, electronic goods, silver and precious and semi precious stones.” Engineering Export Promotion Council (EEPC) India Chairman Ravi Sehgal said: “Negative exports for October,2019 have not come as a surprise, amidst global slowdown, particularly in the main destinations of Indian exports.