Prime Minister Narendra Modi. Photo: Mint
Prime Minister Narendra Modi. Photo: Mint

Fiscal pressure

The government would be well advised to closely examine the reasons behind the shortfall in GST collections at a time when the economy is recovering

As the Narendra Modi government prepares its final budget, fiscal worries are beginning to emerge.

As reported by this newspaper, goods and services tax (GST) collections are likely to fall short by over 1 trillion. It is unlikely that the shortfall will be covered by direct taxes. Since the government has reiterated its commitment to maintaining fiscal targets, it might need to take the difficult decision of cutting expenditure in an election year. A cut in capital expenditure can affect growth prospects in the short to medium term.

Also, overshooting the target would be a big disappointment, both for financial markets and the government, especially in the current global environment. The other big implication of the shortfall would be that further rationalization of rates will get delayed.

The government would be well advised to closely examine the reasons behind the shortfall in GST collections at a time when the economy is recovering.

This will help improve revenue projections and make the budget numbers more credible in the future.

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