The government, for some time, has backed the two “shocks” it brought to the Indian economy: Note Ban (Demonetisation) and a Hasty rollout of the Goods and Services Tax. It said that these measures impose honesty on taxpayers and will broaden the tax base. When the Reserve Bank of India admitted in August that all the currency withdrawn from circulation during the note ban had returned, the government tried to save face by insisting that revenues would reflect how successful the move actual had been. Now it seems Indians will have to wait even longer to see that broader base and subsequent success.
The Finance Ministry said on Wednesday that it will be borrowing another Rs 50,000 crore in the current financial year, a move that analysts say is likely to cause India to breach its fiscal deficit target this year. As a result, this will force an alteration of the targets for the next few years as well.
With news of the proposal to borrow an additional Rs 50,000 crore through government securities, analysts are expecting those fiscal numbers to change. The finance ministry has insisted there will not be any net additional borrowing, since it will run down treasury bills by Rs 61,203 crore. But analysts believe that when the full year’s borrowing details are put together, it is possible that it will go beyond what had been budgeted.
In other words, despite – or, as likely, because of – demonetisation, the hasty GST rollout, subsequent changes to the GST rate structure and other reforms, the government is expecting to get less money this year than it expected and will need to borrow to make up for that.
This is something of a setback for Finance Minister Arun Jaitley, who has professed a commitment to the fiscal deficit reduction path from his budget and was lucky enough to start off with economic conditions that made it a plausible goal. It is also yet another indicator of how hard two self-imposed shocks, GST and demonetisation, have hit the economy.