India is facing a “silent fiscal crisis” due to a shortfall in tax revenues, according to Rathin Roy, a member of the Economic Advisory Council to the Prime Minister. “At the heart of the crisis is a shortfall in tax revenues,” Bloomberg quoted Roy as saying on Monday. “It is mainly due to a shortfall in GST revenues (but also personal income tax revenues), compared to the numbers presented in the revised estimates.”
According to Budget documents, the government aims to collect $370 billion (Rs 25.53 lakh crore) in taxes in the current financial year. “In my professional judgement, you will not able to tax as much as has been forecast in 2019-’20 Budget,” Roy said at an event in Delhi, according to PTI. “Therefore either you will have to borrow more or you will have to spend less. If you borrow more then it has implications for overall economy, or you spend less then it also have implications.”
Roy urged the government to issue a white paper on medium-term fiscal framework, saying it would be difficult to meet the tax collection target for 2019-’20. “Given this revenue shortfall, the expectation from the revenue department is the tax-GDP ratio will rise by more than 1% of the GDP, I don’t know how this is going to happen,” Roy said. “...My plea to government is to immediately issue a white paper if you like that incorporates medium term fiscal framework for next three to five years.”
The economist also questioned the government’s 3.4% fiscal deficit number for the last financial year, citing a revenue-GDP ratio of 8.2% that was a full percentage point lower than the revised estimates. “How is this done given the stunning shortfall in the tax-GDP ratio?” he asked. In the Union Budget earlier this month, Finance Minister Nirmala Sitharaman had reduced the fiscal deficit target to 3.3% from an earlier objective of 3.4% for 2019-’20.
Roy also expressed his reservation about the government’s decision to start raising a part of its gross borrowing programme from external markets in foreign currencies. He said there were serious concerns regarding loss of sovereignty.
“I pay very careful attention to the former RBI Governor YV Reddy’s opinion that these are sovereign liabilities to perpetuity,” Roy said. “I would urge very respectfully, a public consultation on this subject and public discussion rather than imperial announcement of borrowing programme without taking accounts of these facts.”