Fitch Revises India’s Fiscal Deficit Forecast To 3.6% Of GDP For 2019-20

On Wednesday, Fitch Solutions raised the fiscal deficit forecast for India to 3.6 percent of the GDP (Gross Domestic Product) of the current financial year 2019-20. It was earlier projected at 3.4 percent of the GDP.

It said that the revision was made as it anticipates a likely fall in the country's revenue collection in comparison to the projections made in the Union Budget due to weak GST (goods and services tax) on account of sluggish economic growth and a cut in the corporate tax rate.

On 20 September, the Central Government had announced a cut in corporate income taxes from 30 percent to 22 percent. Including additional levies, the effective rate would be around 25.2 percent.

As for new manufacturing companies formed after 1 October, the corporate tax rates were revised to 15 percent (effective 17 percent) from the earlier 25 percent.

The rate cuts are estimated to cause a revenue loss of Rs 1.45 lakh crore to the government in 2019-20, as corporate taxes account for 28 percent of the total revenue receipts.

"We are revising our revenue growth forecast to 8.3 per cent (from 13.1 percent previously), which is significantly below the government's budget projection of a 13.2 percent growth," Fitch said.

"Separately, we expect weak private consumption growth to weigh on GST collection and this is already being reflected in the growing shortfall in GST collections thus far in FY2019/20," it said.

It also revised down expenditure growth forecast for FY2019/20 to 12.1 percent (from 13.7 percent), below the government's 13.4 percent projection.