Govt to use revenue surge to fund welfare drives, focus not on fiscal deficit target

New Delhi: India will utilise a big bump in revenue collection to fund welfare programmes instead of trying to beat its fiscal deficit target or lower borrowing, two government sources told Reuters.

The country is set to exceed its 2020/21 revenue collection target of Rs 15.45 trillion, the first beat in four years, but a big chunk of the extra cash will go to a rural job programme and to provide free cereals to the poor.

The government is also likely to lose Rs 550 billion to Rs 600 billion in additional revenue after cutting fuel taxes this week to arrest runaway prices.

"Even after the cut in fuel taxes we should be able to exceed the tax collection target for the year but will use the funds for rural job programme and subsidies," said one of the officials, both of whom declined to be identified talking about market-sensitive figures.

"Fiscal deficit and borrowing will be at the budget estimate levels."

The finance ministry declined to comment.

Before the fuel tax cut, many economists had predicted India bettering its fiscal deficit target of 6.8% by 30-50 basis points for the year that ends on March 31.

Market participants had also expected the government to review its budgeted borrowing of Rs 12.055 trillion, before starting discussions on its next budget to be presented on February 1.

Prime Minister Narendra Modi's administration is planning to top up its rural job-guarantee effort by up to Rs 300 billion, said the second official, having used up Rs 730 billion allocated for the current fiscal year.

The government will also have to provide an additional 500 billion each for its free food drive and an incentives programme for exporters, said the officials. The government has also approved Rs 400 billion extra in fertiliser subsidies.