FinMin not planning spending cuts or revising fiscal deficit target

Sitharaman hopes steep cuts in tax rates would increase compliance

finmin [File] Union Finance Minister Nirmala Sitharaman with MoS for Finance Anurag Thakur and Finance Secretaey Rajiv Kumar in New Delhi | PTI

Despite slashing corporate tax rates on Friday, the Centre neither plans to cut expenditure nor revise its fiscal deficit target. Finance Minister Nirmala Sitharaman said on Sunday that she hoped the steep cuts in corporation tax rates would increase compliance, which will indeed help her ministry to stick to the fiscal deficit target for now, reported the Business Standard.

On raising the borrowing target for the second half of the current fiscal, the finance minister said, it will be decided in the next few days. "Not touching any of the given targets now. When the meeting for revised estimates takes place, we will look at it," Sitharaman said.

She also emphasised that there are no immediate plans for slashing expenditure, and her ministry was asking other ministries to quickly release money for spending. “We want ministries to spend... Expenditure secretary is meeting secretaries from other departments every week to push spending by departments and PSUs (public sector undertakings),” the Economic Times cited Sitharaman.

In the biggest reduction in 28 years, the government slashed corporate tax by almost 8 percentage points as it looked to pull the economy out of a six-year low growth and a 45-year high unemployment rate by reviving private investments.

Base corporate tax for existing companies was reduced to 22 per cent from the current 30 per cent; and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023, to 15 per cent from the current 25 per cent.

Friday's round of fresh tax rate cuts by the finance ministry is expected to cost the exchequer Rs 1.45 lakh crore a year. As a result, India's fiscal deficit is expected to widen. The fiscal deficit is pegged at 3.3 per cent of GDP in the current financial year. However, with GST collections not meeting expectations, the government is likely to be further strained in meeting its fiscal target, which has already touched 73 per cent of the budget estimates in only four months.

According to global rating agency Moody's, the reduction in corporate income tax revenue even when balanced against the windfall from the recent transfer of central bank surplus reserves, equivalent to around 0.3 per cent of GDP in the current fiscal year further narrows fiscal room for manoeuvre.

However, it described the rate reduction as credit positive for companies because it will enable them to generate higher post-tax incomes.

(WIth PTI inputs)