NEW DELHI: The government is likely
to
cut
spending for the current fiscal year by as much as Rs 2 lakh crore ($27.82 billion) as it faces one of the biggest tax shortfalls in recent years, three government sources said.

Asia’s third largest economy, which is growing at its slowest pace in over six years because of lack of private investment, could be
hurt further if the government cuts
spending.

But with a revenue shortfall of about Rs 2.5 lakh crore, the government has little choice
to keep its
deficit within “acceptable limits”, the first official, who did not want
to be named, told Reuters.

The government has spent about 65% of the total expenditure target of Rs 27.86 lakh crore till November but reduced the pace of
spending in October and November, according
to government data. A 2 lakh crore-rupee reduction would be about a 7%
cut in total
spending planned for the year.

In October and November, government
spending increased by Rs 1.6 lakh crore, nearly half the Rs 3.1 lakh crore it spent in September. The fiscal year starts April 1 and ends March 31.

Lack of demand and weak corporate earnings
growth in the economy led
to lagging tax collections this year. Analysts said
growth will be
hurt.

“When the private investment has slowed so much, this will definitely drag down
growth further,” said Rupa Rege Nitusure, chief economist at L&T Financial.

India‘s economic
growth slowed for six consecutive quarters
to 4.5% in July-September, despite a 135-basis-point
cut in interest rates by the central bank since February 2019.

Now, even the Reserve Bank of
India seems
to have become more worried about inflation rising. It kept its key lending rate on hold on December 5, even though it slashed its
growth forecast for the current fiscal
to 5%, which would be the lowest in a decade.

Even a surprise corporate tax rate
cut announced by Finance Minister Nirmala Sitharaman earlier this year failed
to spur private investment in the economy.

The government is likely
to keep the fiscal
deficit under 3.8% of gross domestic product, sources said, while letting it slip from its earlier set target of 3.3% for the year.

The government is likely
to announce additional borrowing of Rs 3,000 crore
to Rs 5,000 crore for the current year
to match the revised fiscal
deficit, two sources in the government said.





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