To make up for shortfall in GST collection, Govt may have to cut spending by Rs 700 million: SBI report

To make up for shortfall in GST collection, Govt may have to cut spending by Rs 700 million: SBI report

PW Bureau

The SBI report said that an "inevitable" slowdown in global growth would have a substantial impact on India's GDP growth

New Delhi: To make up for the shortfall in goods and services tax (GST) collection this fiscal, the government may have to cut its federal spending by Rs 700 million, a report prepared by State Bank of India's research wing said.

The cut in the federal spending would be equal to a fourth of the capital expenditure for 2018-19 and twice the Rs 363 billion reduction in capital spending the government did in 2017-18 in order to restrict fiscal deficit at 3.5 per cent of the gross domestic product (GDP).

The report, however, said that if oil stabilises at near $65/bbl, India's current account deficit (CAD) would come down to 2.6 percent of the GDP, from the earlier estimate of 2.8 percent.

Soumya Kanti Ghosh, group chief economic advisor at SBI, and the author of the report said that the shortfall in GST collection, coupled with an "inevitable" slowdown in global growth, would have a substantial impact on India's GDP growth. "The growth in the fourth quarter of 2018-19 (Q4) could well go below 7 per cent," he said.

The report, however, said that if oil stabilises at near $65/bbl, India's current account deficit (CAD) would come down to 2.6 percent of the GDP, from the earlier estimate of 2.8 percent.

The report estimates the shortfall in indirect tax collections at Rs 900 billion, of which the major chunk would be due to GST, to the tune of Rs 700 billion. This includes a reduction of Rs 105 billion due to excise duty cuts on petrol and diesel. In addition, a low performing stock market would make the collection of Rs 200 billion as long-term capital gains tax difficult.

The report indicated that to boost rural sector in times of revenue shortfall, fiscal expansion could possibly be resorted to. "We should not be obfuscated solely with a rigid fiscal policy stance as we must support our rural sector in terms of aggressive policy measures to boost farm income given declining prices," it said.

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