A rise in social sector spending and higher allocation to welfare schemes like PM Kisan pose fiscal challenge to the Modi government. This would require the government to look for new ways to find money without compromising the fiscal deficit targets, the Economic Survey 2019 said.
A possible slowdown in economy and its resultant impact on revenue collection could put additional pressure on public finances.
“The coming year will pose several challenges on the fiscal front. Firstly, there are apprehensions of slowing of growth, which will have implications for revenue collections. Secondly, the financial year 2018-19 has ended with shortfall in GST collections,” said the survey, tabled in Parliament on Thursday.
Revenue buoyancy of the GST will thus be the key to improved resource position of both central and state governments.
“Thirdly, resources for now expanded Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) and Ayushmaan Bharat as well as new initiatives of the new government will have to be found without compromising the fiscal deficit target as per the revised glide path,” it said.
Some of the external factors could also have their bearing on the economy. For example, the US sanctions on oil import from Iran is likely to have impact on oil prices and thereby on the petroleum subsidy, apart from implications for current account balances.
The survey said that Fifteenth Finance Commission will submit its report for next five years beginning April 2020 and its recommendation especially on tax devolution will have implications for central government finances.
Both in absolute terms and as a percentage of the GDP, total transfers to states have risen between 2014-15 and 2018-19 (Revised Estimates). Total transfers to states have risen by 1.2 percentage points of the GDP over this period.
The key document further said that while direct taxes had grown by 13.4 per cent (FY19), indirect tax collection remained below Budget targets mainly on account of shortfall in GST revenue.