Given the impending elections in several States and at the Centre, the Reserve Bank of India said adherence to the budgeted revenue expenditure will be a major challenge for government finances.

According to the central bank, an analysis of Government Final Consumption Expenditure (GFCE) growth for the period 1991-92 to 2017-18, suggests that revenue expenditure generally picks up in election years.

“This highlights the risks of curtailment of capital expenditure and/ or deviation from the GFD (gross fiscal deficit) targets.

“There are also risks of overshooting of revenue expenditure in the current year due to potential outlays associated with food and fuel subsidies for the Centre, debt waivers for States, and the announced increase in minimum support price (MSP) for kharif crops,” said the RBI in its monetary policy report.

Fiscal slippage

Should there be fiscal slippage at the Centre and/or State levels, it could result in greater market volatility and higher inflation while crowding out private investment, it added.

However, the report underscored that the government has indicated that it does not anticipate any slippage in the fiscal deficit target, and expects revenue collection to be in line with the budget estimates.

Revenue mobilisation through better tax compliance, non-tax revenues, and disinvestment hold the key to sustaining fiscal consolidation by the Centre, the report said, adding that State finances are likely to be under pressure during the current fiscal year due to the roll-out of farm loan waivers and implementation of pay commission awards and arrears.

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