India's April-Jan fiscal deficit crosses full-year target, hits Rs5,33,000 cr

28 February 2014

Fiscal consolidation seems to be a chimera for the country despite finance minister P Chidambaram's promises. While the finance minister claims to have met the target of fiscal consolidation through a sharp cut in 2013-14 Plan expenditure, facts show otherwise.

India's fiscal deficit touched Rs5,33,000 crore during April-January 2013-14, which is 101.6 per cent of the full year target of Rs5,25,000 crore, compared with 89.4 per cent for the first ten months of the previous fiscal.

The country's fiscal deficit, which the finance minister had projected at below 4.6 per cent of GDP, against the earlier target of 4.8 per cent, could well be above 5 per cent of GDP.

With the trickling in of the effects of the recent announcements that involve additional expenditures the fiscal deficit could go up to levels above 5.5-6.0 per cent in the 2013-14 fiscal.

The revised estimate for the 2013-14 fiscal deficit is 4.6 per cent of GDP, against the budgeted 4.8 per cent, despite a significant shortfall on the revenue front.

For FY'15, the government has projected a fiscal deficit target of 4.1 per cent of GDP, marginally better than expected (4.2 per cent).

Government plans to finance about 87 per cent of this deficit through market borrowing (net borrowing: Rs4,57,000 crore as per interim budget).

Total revenue receipts in FY14 were lower by Rs56,904 crore from the budgeted estimate as gross tax revenue declined by Rs76,964 crore due to a growth slowdown.

To achieve the revised target of Rs8,36,026 crore for the full year, the net tax revenues need to grow at 24 per cent in the last quarter of 2013-14.

Divestment receipts were also lower at about Rs35,000 crore. Part of the tax revenue shortfall was met by higher dividends from PSUs, which totalled Rs43,075 crore, much higher than the Rs13,354 crore collected in FY13, and also higher than the budgeted amount of Rs29,870 crore.

This, however, is unsustainable.

Meanwhile, the government's non-plan expenditure went up by about Rs5,000 crore as a cut in non-plan capital expenditure by Rs29,853 crore offset the higher subsidy of Rs24,416 crore (mostly oil subsidy).

The fiscal deficit target was primarily met through a sharp Rs79,790-crore reduction in Plan expenditure.

The FY'15 fiscal deficit target, budgeted at 4.1 per cent of GDP, will be tough to achieve.

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