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Slippage Risks Remain But Govt Likely To Stick To Deficit Target: Kotak

Given the election calendar, Kotak Institutional Equities says that higher welfare spending poses upside risks to expenditure

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Amid the ongoing concerns of economic slowdown, Kotak Institutional Equities in a report on Tuesday has said that slippage risks remain but the central government is likely to stick to the deficit target.

The company in a report stated, "We pencil in a normalisation of the direct tax growth rate. The RBI’s surplus transfer is likely to offset only part of tax collections and divestment shortfalls."

Given the election calendar, the bank stated that higher welfare spending poses upside risks to expenditure. "We maintain our FY2024 GFD/GDP estimate at 6.1 per cent, though the government will likely stick to the 5.9 per cent target with some expenditure re-prioritisation," it added.

Notably, the Centre’s fiscal deficit in 5MFY24 remained in check at 36 per cent of FY2024BE, aided by the sharp improvement in direct taxes. Corporate and income tax receipts registered outsized growth in August. The pace of expenditure remained steady, it added.

"The government will aim to stick to the GFD/GDP target of 5.9 per cent while fiscal slippage risks remain without expenditure re-prioritisation," it said.

The center’s receipts were at 38 per cent of FY2024BE in 5MFY24 (21 per cent higher than 5MFY23). Gross tax revenue picked up to 35 per cent of FY2024BE (17 per cent higher), driven by direct tax growth at 26 per cent in 5MFY24 ((-)2 per cent in 4MFY24). 

Meanwhile, corporate and income tax growth rates were at 15 per cent and 34 per cent in 5MFY24 ((-)10 per cent and 5 per cent in 4MFY24). Excise revenue growth stood at 29 per cent of FY2024BE (12 per cent lower). 

Net tax revenue was 34 per cent of FY2024BE (15 per cent higher).