Govt plans to cut spending to curb shortage, may hurt growth: Report

Govt plans to cut spending to curb shortage, may hurt growth: Report

NEW DELHI: India’s government is likely to cut spending for the current fiscal year by as much as $2 trillion ($27.82 billion) as it faces one of the largest tax shortfalls in recent years, three government sources said.

Asia’s third largest economy, which is growing at its slowest pace in over six years due to lack of personal investment, could be hurt further if the government cuts spending.

But with a revenue shortfall of about $2.5 trillion, the government has little choice to maintain its deficit within”acceptable limits”, the first official, who didn’t want to be named, told Reuters.

The government has spent roughly 65 percent of the whole expenditure target of $27.86 trillion till November but reduced the pace of spending in October and November, according to government data. A $ 2 trillion reduction will be about a 7% cut in total spending planned for the year.

In October and November, government spending increased by $1.6 trillion, nearly half the $3.1 trillion it invested in September. The fiscal year starts 1 April and ends 31 March.

Deficiency of demand and weak corporate earnings growth in the economy led to lagging tax collections this year. Analysts said growth will be hurt.

India’s economic growth slowed for six consecutive quarters to 4.5% in July-September, despite a 135-basis-point cut in interest rates by the central bank since February 2019.

Now, even the Reserve Bank of India (RBI) seems to have become more worried about inflation rising. It maintained its key lending rate on hold December, though it slashed its growth forecast to 5 percent, which would be the lowest in a decade for the current fiscal.

Even a surprise corporate tax rate cut this year, announced by Finance Minister Nirmala Sitharaman failed to spur investment.

The government is very likely to keep the fiscal deficit under 3.8percent of gross domestic product, sources said, while letting it slide from its earlier set goal of 3.3% for the year.

The government is likely to announce additional borrowing of 300 billion to $50,000 crore for the current year to coincide with the revised financial deficit, two resources in the government said.

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